Answer the next three questions on the basis of the following production possibilities data for Francia and Galacia.All data are in tons. (a) If trade occurs between Francia and Galacia, which nation should export what product? Why?(b) What are the limits of the terms of trade between Francia and Galacia?(c) Assume that prior to specialization and trade, Francia and Galacia chose production possibility "C." Now each specializes according to comparative advantage.What will be the resulting gains from trade? Explain your answer.

Question

Answer the next three questions on the basis of the following production possibilities data for Francia and Galacia.All data are in tons.  (a) If trade occurs between Francia and Galacia, which nation should export what product? Why?(b) What are the limits of the terms of trade between Francia and Galacia?(c) Assume that prior to specialization and trade, Francia and Galacia chose production possibility "C." Now each specializes according to comparative advantage.What will be the resulting gains from trade? Explain your answer.

Quizplus · Accepted Answer

The Answer is (a) Francia should export soup and Galacia should export nuts.Francia is the low cost producer of soup.The opportunity cost of 1 unit of soup is 1 unit of nuts.For Galacia the opportunity cost of 1 unit of soup is 3 units of nuts.Galacia is the low cost producer of nuts.The opportunity cost for Galacia to produce nuts is 1/3 unit of soup.The opportunity cost of nuts for Francia is 1 unit of nuts for 1 unit of soup.(b) The limits are from 1 ton of soup for 1 ton of nuts up to 1 ton of soup for 3 tons of nuts.(c) Before specialization, Francia produced 30 tons and Galacia 10 tons of soup for a total of 40 tons.After specialization and trade, Francia produces 60 tons of soup for a gain of 20 tons of output.Before specialization, Francia produced 30 tons and Galacia 30 tons of nuts.After specialization and trade, Galacia will produce 60 tons of nuts.Total output of this product did not change.

Answer the Next Three Questions on the Basis of the Following