Production and consumption and specialization

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Reference no: EM131625454

"Problems 1–2 illustrate an example of trade induced by comparative advantage. They assume that China and France each have 1,000 production units. With one unit of production (a mix of land, labor, capital, and technology), China can produce either 10 containers of toys or 7 cases of wine. France can produce either 2 cases of toys or 7 cases of wine. Thus, a production unit in China is five times as efficient compared to France when producing toys, but equally efficient when producing wine. Assume at first that no trade takes place. China allocates 800 production units to building toys and 200 production units to producing wine. France allocates 200 production units to building toys and 800 production units to producing wine."

1. Production and Consumption. What is the production and consumption of China and France without trade?

2. Specialization. Assume complete specialization, where China produces only toys and France produces only wine. What would be the effect on total production?

Reference no: EM131625454

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