Question

France and England both produce wine and cloth under conditions of 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 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.A)150; 100; 100; 100B)150; 0; 100; 50C)150; 0; 50; 50D)0; 100; 50; 50

Answer 1

The correct answer is option B.

Step-by-step explanation:

France can produce 150 barrels of wine or 100 bolts of cloth.

England can produce 50 barrels of wine or 150 bolts of cloth.

The opportunity cost of producing a barrel of wine for France

=
`(100)/(150)`

= 0.66 bolts of cloth

The opportunity cost of producing a barrel of wine for England

=
`(150)/(50)`

= 3 bolts of cloth

France has a lower opportunity cost for producing wine, so we can say it has a comparative advantage in producing wine.

The opportunity cost of producing a bolt of cloth for France

=
`(150)/(100)`

= 1.5 barrel of wine

The opportunity cost of producing a bolt of cloth for England

=
`(50)/(150)`

= 0.33 barrel of wine

England has a lower opportunity cost for producing cloth, so we can say it has a comparative advantage in producing cloth.

1 barrel of wine exchanges for 1 bolt of cloth and France exports 50 units of wine.

France produces 150 barrels of wine and 0 units of cloth. France consumes 100 units of wine and 50 units of cloth.