Suppose France produces only two goods, airplanes and grapes. If France has a comparative advantage in grapes, a move toward free trade will:

Question

Quizplus · Accepted Answer

If France has a comparative advantage in grapes, it means that France can produce grapes at a lower opportunity cost than airplanes. By moving toward free trade, France can benefit from importing airplanes at a lower cost and focusing on producing grapes, which it can produce more efficiently. This will lead to an increase in grape production, benefits for grape workers, and lower costs for airplane consumers. However, this may harm airplane workers in the short run as they may face job losses. But in the long run, the economy will benefit from producing goods where it has a comparative advantage, leading to an increase in overall output and income. Therefore, option D is the correct answer.

Suppose France Produces Only Two Goods, Airplanes and Grapes