Paragraph Styles Suppose labor productivity in France is such that one hour of l
ID: 1157924 • Letter: P
Question
Paragraph Styles Suppose labor productivity in France is such that one hour of labor is required to produce one gallon of wine while two hours of labor are required to produce one pound of cheese. Assuming the availability of 1 million labor hours, draw a constant cost production possibilities curve for France with cheese on the vertical axis and wine on the horizontal axis. If France has a comparative advantage in the production of wine, show where, with free trade, France will produce on its production possibilities curve. If the free trade price of wine is two pounis of cheese per gallon, draw a trade line and use it to illustrate how France can gain from trade. POSSIBLE RESPONSE 1. 1? om w ??e@@ ^?Explanation / Answer
Hello!
Your answer is totally correct.
Since, the opportunity cost of one gallon of wine in France is half a pound of cheese, which is less than the international price of a gallon of wine equal to two pounds of cheese. This means that with one hour of labour France can produce half a pound of cheese itself but if it poduces wine gallon of wine and trades it outside, it can have two pounds of cheese. Therefore, France has to produce wine as it has comparative advantage in it.
Trade line also lies outside the production possibilities at home for France. Therefore, it can gain more by trading.
Your diagram correctly depicts the entire case.
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