Table 3-24
Assume that England and Spain can switch between producing cheese and producing bread at a constant rate.

-Refer to Table 3-24. Without trade, England produced and consumed 32 units of cheese and 2 units of bread and Spain produced and consumed 6 units of cheese and 2 units of bread. Then, each country agreed to specialize in the production of the good in which it has a comparative advantage and trade 7 units of cheese for 2.5 units of bread. As a result, England gained
A)0 units of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit of bread.
B)1 unit of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit of bread.
C)7 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5 units of bread.
D)33 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5 units of bread.

Question

Table 3-24
Assume that England and Spain can switch between producing cheese and producing bread at a constant rate.
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-Refer to Table 3-24. Without trade, England produced and consumed 32 units of cheese and 2 units of bread and Spain produced and consumed 6 units of cheese and 2 units of bread. Then, each country agreed to specialize in the production of the good in which it has a comparative advantage and trade 7 units of cheese for 2.5 units of bread. As a result, England gained
A)0 units of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit of bread. 
B)1 unit of cheese and 0.5 unit of bread and Spain gained 1 unit of cheese and 0.5 unit of bread. 
C)7 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5 units of bread. 
D)33 units of cheese and 2.5 units of bread and Spain gained 7 units of cheese and 2.5 units of bread.

Quizplus · Accepted Answer

Before trade, England can produce 1 unit of bread by giving up 16 units of cheese (32/2) while Spain can produce 1 unit of bread by giving up 3 units of cheese (6/2). Therefore, England has a comparative advantage in the production of cheese as it has a lower opportunity cost compared to Spain.

After trade, England trades 7 units of cheese for 2.5 units of bread. This means England gives up 1 unit of bread by giving up 2.8 units of cheese (7/2.5), which is higher than the opportunity cost of producing bread domestically (1 bread = 16 cheese). Therefore, England should specialize in the production of cheese and trade for bread.

As a result of trade, England gains 1 unit of bread (from 2 to 3) and 1 unit of cheese (from 32 to 39) while Spain gains 1 unit of cheese (from 6 to 7) and 0.5 unit of bread (from 2 to 2.5).

Therefore, the best choice is B, where England gains 1 unit of cheese and 0.5 units of bread, and Spain gains 1 unit of cheese and 0.5 units of bread.

Table 3-24 Assume That England and Spain Can Switch Between Producing Cheese