Question

Develop a trade between two countries that benefits them both

The table shows the number of rice and phones that can be produced in FRANCE and England with 7 days of labor assume that no other resources are needed to produce these goods

.	France	England
If Produce only Rice	100	250
If Produce only Phones	200	250

If the 2 countries France and England wanted to trade with each other. What trade would benefit them both?

Would the answer France gave up 2 pounds of rice and England gave up two phones that would be considered a fair trade were both countries benefited?

Answer 1

	France	England
If Produce only Rice	100	250
If Produce only Phones	200	250

For France:-

Opportunity cost of producing Rice :-

100 rice = 200 phones

1 rice = 2 phones

Opportunity cost of producing Phones :-

200 phones =100 rice

1 phone= 0.5 rice

For England:-

Opportunity cost of producing Rice :-

250 rice = 250 phones

1 rice = 1 phones

Opportunity cost of producing Phones :-

250 phones =250 rice

1 phone= 1 rice

So France has comparative advantage in the production of phone and England has comparative advantage in the production of rice.

So the trade should be :- France should trade phone and England should trade Rice.