While we can't predict precise terms of trade, it is clear that there is a wide range of possible terms that enable both trading partners to realize significant gains from trade so long as they are willing to specialize in production of that good in which they have a comparative advantage.

In the next section, we will use the idea of the trade region to illustrate how potential gains from trade are diminished by various trade restrictions, so be sure you understand how we determine this region before you move on to 5. Trade Restrictions.

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