Question

% Concept: Gains From International Trade E Question Help Suppose France and Spain produce only cloth and wine. Assume that each country uses only labor to produce each good, and that the cloth and wine made in France and Spain are exactly alike. The table below shows how much each country can produce of each good with one hour of labor Output per Hour of Labor Cloth Wine France 23 16 Spain Suppose that France and Spain do not trade with each other. Each has 500 hours of labor with which to produce cloth and wine, and the countries we currently producing amounts of each good shown in the table below Consumption with 500 Hours of Labor Cloth Wine France 10,350 800 Spain 800 2.400 Assume now that each country specializes in producing that good in which it has a comparative advantage. Further, assume for simplicity that one unit of cloth can be traded for one unit of wine. If France trades 800 units of cloth for 300 units of wine with Spain, then with trade, France will be able to consume the same amount of wine and 350 additional units of cloth (enter a numeric response using an integer), and Spain will be able to consume the same amount of cloth and additional units of wine. E n wer in the answer box and then click Check Answer

Answer 1

1)

2)

In France, to produce a3 c, Give up 16 wine per hour Opportunity cost of IC= 16/23 wine. In Spach o. c. of Ic= 8/4 = 2 wine as france has lower oc of proda of cloth, 80 france has Comparative Advantage CCA) in cloth & Spain has CA in wine So France will produce only cloth = 23x500 = 11,500 Spath a w Spe caline uy of e = 8х500 = 40,00 . Now France trades 800 c, 80 gt gets 800 wine & Consumes = 11500-800 = 10700 80 Consumes additional ² (10700-10,350)= 350 cloth units Spath gets 8000 & allerbedaal. (8 4000-800) = 7200.wine so Consumes additional (3200-2400) = 800 wine. Ane

1) 350 additional cloth

2) 800 additional wine