Nation Alpha has a comparative advantage in product X, and nation Beta has a comparative advantage in product Y. Trade in the two products will only benefit the two nations if

A) the exchange ratio of X for Y is fixed.
B) the terms of trade increase in both nations.
C) there is excess capacity in both economies.
D) the exchange ratio for X and Y reflect their domestic opportunity costs.

The principle of comparative advantage suggests that nations benefit from trade if they specialize in the production of goods for which they have a lower opportunity cost and trade those goods for others. The exchange ratio (terms of trade) for the goods should reflect their respective domestic opportunity costs to ensure that both nations benefit from the trade. This allows each country to consume more than it would in isolation, enhancing overall economic welfare.