Question

France and England both produce wine and cloth with constant opportunity costs. France can produce 150 barrels of wine if it produces no cloth or 100 bolts of cloth if it produces no wine. England can produce 50 barrels of wine if it produces no cloth or 150 bolts of cloth if it produces no wine. When international trade takes place, each country specializes completely in the production of the good in which it has a comparative advantage: 1 barrel of wine exchanges for 1 bolt of cloth and France exports 50 units of wine. We can conclude that France produces _____ units of wine and _____ units of cloth and that France consumes _____ units of wine and _____ units of cloth.

150; 0; 100; 50

150; 0; 50; 50

150; 100; 100; 100

0; 100; 50; 50

Answer 1

France's opportunity cost of producing 1 barrel of wine is (100/150) = 0.67 bolts of clothes. France's opportunity cost of producing 1 bolt of cloth is (150/100) = 1.5 barrel of wine.

England's opportunity cost of producing 1 barrel of wine is (150/50) = 3 bolts of clothes and opportunity cost of producing 1 bolt of cloth is (50/150) = 0.33 barrel of wine.

As France's opportunity cost of producing 1 barrel of wine is less than that of England's, so France has comparative advantage in the production of wine. And, as England's opportunity cost of producing 1 bolt of cloth is less than that of France's, so England has comparative advantage in the production of cloth.

If they specialize in the production in which they have comparative advantage, then England will produce 150 bolts of cloth and 0 wine, while France will produce 150 barrels of wine and 0 cloth.

If they trade exchange 1 bolt of cloth for 1 barrel of wine, and France exports 50 units of wine, then it will import 50 units of cloth. So, France's after trade Consumption will be (150 - 50) = 100 barrels of wine and (0+50) = 50 bolts of cloth.

Answer: option 1