The graphs illustrate the production possibilities for commodities X and Y in two countries, M and N. What would happen if M and N agreed to trade the commodities at an exchange rate of 1Y for 3X?
- ABoth countries will gain, because their consumption possibilities will increase.
- BConsumers in country M will lose, because a unit of Y will now cost 3X instead of 2X.
- CNeither country will gain, because they both have a comparative advantage in the production of the same commodity, X.
- DOnly country N will gain, because N can produce more of both commodities than M.