Answer: 4.Japan should produce Cars and USA should produce wine.
Step-by-step explanation:
The Ricardian trade theory is the foundation for Competitive Advantage which espouses that countries should produce and trade goods which they are more efficient at producing.
A country is more efficient at producing a good if it incurs less opportunity costs when doing so.
USA
Cost of producing 1 bottle of wine = 3 /5 = 0.6 cars
Cost of producing 1 car = 5/3 = 1.67 wines
Japan
Cost of producing 1 bottle of wine = 7/3 = 2.33 cars
Cost of producing 1 car = 3/7 = 0.43 wines
The USA has a lower opportunity cost in the production of Wine which means that it is more efficient in it and so it should produce wine.
Japan on the other hand is more efficient in the production of cars so it should produce cars.