Consider the Following Information About Production of Wine and Food(A) Using the Grids Below, Plot Each Country's Production Possibilities

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The Answer is (a) The production possibilities curves:

(a) The production possibilities curves: (b) England has a comparative advantage in the production of food and France has a comparative advantage in the production of wine. To see this, examine the opportunity cost of producing food and wine in each country. Focus on the production of food. In England, if all resources are transferred away from food to wine, there is a loss of 500 tons of food and a gain of 50 gallons of wine. Thus giving up 1 ton of food results in a gain of 1/10 of a gallon of wine. Hence, the opportunity cost of one ton of food in England is 1/10 gallons of wine. Now look at France. If all resources are transferred away from food to wine, there is a loss of 50 tons of food and a gain of 500 gallons of wine. Thus giving up 1 ton of food results in a gain of 10 gallons of wine. Hence, the opportunity cost of one ton of food in France is 10 gallons of wine. Since England has a lower opportunity cost of food than France, England has a comparative advantage in the production of food. A similar analysis will allow you to discover that France has a comparative advantage in the production of wine because its opportunity cost is of one gallon of wine is 1/10 of a ton of food whereas England's is 10 tons of food. (c) As a trader, you can make a proposal that will allow each country to consume at a point beyond their current production possibility curve by specializing in the production of the good they have a comparative advantage in, and then trading with you for some of the other good. There are many trades you can propose that will allow you to make money. Here is one possibility. To England: Rather than producing (and consuming) 200 tons of food and 30 gallons of wine, produce 500 tons of food. Then, give me 250 tons of food and I will give you 60 gallons of wine. Thus you now get to consume more of both goods (250 tons of food and 60 gallons of wine) than before! To France: Rather than producing (and consuming) 30 tons of food and 200 gallons of wine, produce 500 gallons of wine. Then give me 250 gallons of wine and I will give you 60 tons of food. Thus you can consume more of both goods (60 tons of food and 250 gallons of wine) than before! How do you make money? Compare the total production levels with the total consumption levels. England produces 500 tons of food but only 310 tons are consumed in England and France. France produces 500 barrels of wine but only 310 barrels are consumed in England and France. This leaves you with 190 tons of food and 190 barrels of wine to sell!

(b) England has a comparative advantage in the production of food and France has a comparative advantage in the production of wine. To see this, examine the opportunity cost of producing food and wine in each country.
Focus on the production of food. In England, if all resources are transferred away from food to wine, there is a loss of 500 tons of food and a gain of 50 gallons of wine. Thus giving up 1 ton of food results in a gain of 1/10 of a gallon of wine. Hence, the opportunity cost of one ton of food in England is 1/10 gallons of wine. Now look at France. If all resources are transferred away from food to wine, there is a loss of 50 tons of food and a gain of 500 gallons of wine. Thus giving up 1 ton of food results in a gain of 10 gallons of wine. Hence, the opportunity cost of one ton of food in France is 10 gallons of wine. Since England has a lower opportunity cost of food than France, England has a comparative advantage in the production of food.
A similar analysis will allow you to discover that France has a comparative advantage in the production of wine because its opportunity cost is of one gallon of wine is 1/10 of a ton of food whereas England's is 10 tons of food.
(c) As a trader, you can make a proposal that will allow each country to consume at a point beyond their current production possibility curve by specializing in the production of the good they have a comparative advantage in, and then trading with you for some of the other good. There are many trades you can propose that will allow you to make money. Here is one possibility.
To England: Rather than producing (and consuming) 200 tons of food and 30 gallons of wine, produce 500 tons of food. Then, give me 250 tons of food and I will give you 60 gallons of wine. Thus you now get to consume more of both goods (250 tons of food and 60 gallons of wine) than before!
To France: Rather than producing (and consuming) 30 tons of food and 200 gallons of wine, produce 500 gallons of wine. Then give me 250 gallons of wine and I will give you 60 tons of food. Thus you can consume more of both goods (60 tons of food and 250 gallons of wine) than before!
How do you make money? Compare the total production levels with the total consumption levels. England produces 500 tons of food but only 310 tons are consumed in England and France. France produces 500 barrels of wine but only 310 barrels are consumed in England and France. This leaves you with 190 tons of food and 190 barrels of wine to sell!

Consider the Following Information About Production of Wine and Food

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Consider the Following Information About Production of Wine and Food

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