This problem illustrates an example of trade induced by comparative advantage. I
ID: 2763249 • Letter: T
Question
This problem illustrates an example of trade induced by comparative advantage. It assumes that China and France each have 1,000 production units. With one unit of production (a mix of land, labor, capital, and technology), China can produce either 10 containers of toys or 6 cases of wine. France can produce either 2 containers of toys or 6 cases of wine. Thus, a production unit in China is five times as efficient compared to France when producing toys, but equally efficient when producing wine. Assume at first that no trade takes place. China allocates 750 production units to building toys and 250 production units to producing wine. France allocates 250 production units to building toys and 750 production units to producing wine. What is the production and consumption of China and France without trade? a. What is the production and consumption of China and France without trade? Calculate the production and consumption of China and France without trade below: (round to nearest integer)
Wine
Production if there is no trade ToysWine
CHINA Allocated production units to Produces and consumes FRANCE Allocated production units to Produces and consumes Total Production and consumption across both countriesExplanation / Answer
Production if there is no trade
Toys(Unit)
Wine(Unit)
CHINA
Allocated production units to
750
250
Produces and consumes
750*10
250*6
Total (a)
7500
1500
FRANCE
Allocated production units to
250
750
Produces and consumes
250*2
750*6
Total (b)
500
4500
Total Production and consumption across both countries( c) =(a)+(b)
8000
6000
Production if there is no trade
Toys(Unit)
Wine(Unit)
CHINA
Allocated production units to
750
250
Produces and consumes
750*10
250*6
Total (a)
7500
1500
FRANCE
Allocated production units to
250
750
Produces and consumes
250*2
750*6
Total (b)
500
4500
Total Production and consumption across both countries( c) =(a)+(b)
8000
6000
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