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Table 3-3 Table 3-3 Production Opportunities Hours Needed to Make 1 Unit of Number of Units Produced in 40 Hours Cheese Winex Which of these trades leads to a gain for both goods for both countries? 0/1 Hint: compare to what you got in the question

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Answer #1

Correct Answer:

C

Working note:

For England, opportunity cost of producing cheese = 10/40 = .25 units of wine

For France, opportunity cost of producing cheese = 20/8 = 2.5 units of wine

England produces Cheese and France produces wine on the basis of comparative advantage.

if time is equally divided between cheese and wine.

Then

England can produce 20 units of cheese and 5 units of wine.

France can produce 4 units of cheese and 10 units of wine.

Alternative C is correct, because after the trade:

England has 30 units of cheese and 8 units of wine

France has 10 units of cheese and 12 units of wine

Now, it can be seen that both countries are gaining in both the goods after the trade and as demanded in the question.

---

Alternative A is not correct, because it is not helping each nation to gain in both the goods after the trade.

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