-Use the above table. Assuming constant opportunity costs, if Argentina and France specialize based on comparative advantage, then they will trade if the rate of exchange
A)is 2.5 gallons of wine for 1 pound of beef, and Argentina imports beef.
B)4 gallons of wine for 1 pound of beef, and France imports beef.
C)0.2 pound of beef for 1 gallon of wine, and Argentina imports wine.
D)8 pounds of beef for 1 gallon of wine, and France imports wine.

Question

-Use the above table. Assuming constant opportunity costs, if Argentina and France specialize based on comparative advantage, then they will trade if the rate of exchange
A)is 2.5 gallons of wine for 1 pound of beef, and Argentina imports beef. 
B)4 gallons of wine for 1 pound of beef, and France imports beef. 
C)0.2 pound of beef for 1 gallon of wine, and Argentina imports wine. 
D)8 pounds of beef for 1 gallon of wine, and France imports wine.

Quizplus · Accepted Answer

Argentina has a comparative advantage in producing beef, while France has a comparative advantage in producing wine. Therefore, Argentina should specialize in producing beef and export it to France, while France should specialize in producing wine and export it to Argentina. The rate of exchange will be determined by the relative prices of beef and wine in the two countries. In this case, the rate of exchange is 2.5 gallons of wine for 1 pound of beef, which means that Argentina will export 1 pound of beef to France for every 2.5 gallons of wine that it imports from France.

-Use the Above Table