Trade at Negotiated Mid-Price. This problem illustrates an example of trade induced by comparative advantage. It assures 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 15 containers of toys or 7 cases of wine. France can produce either 3 cases of toys or 7 cases of wine. Thus, a production unit in China is five times as efficient compare to France when producing toys but euqually efficient when producing wine. Assume at first that no trade takes place. China allocates 825 production units to building toys and 175 production units to producing wine. France allocates 175 production units to building toys and 825 production units to producing wine.
A.) What is the production and consumption of China and France without trade?
B.) Assume complete specialization, where China produces only wine. What would be the effect on total production?
C.) The mid-price for exchange between France and China can be calculated as follows. The mid-price for the number of
A.) What is the production and consumption of China and France without trade?
Calculate the production and consumption of France and China without trade below. (round to the nearest integer)
Production if there is no trade Toys
China
Allocated production units _____
Produces and consumes (output per unit x units allocated) _______
France
Allocated production units to ______
Produces and consumes (output per unit x units allocated) ______
Total production and consumption across both countries ______