**Table: Labor Hours Per Unit of Output for Goods in Spain and France**| Goods | Spain | France ||----------|-------|--------|| Grapes | 8 | 15 || Textiles | 4 | 5 |*Note: Figures are hours of labor per unit of output.***Explanation:**The table presents the labor hours required to produce one unit of grapes and textiles in Spain and France. For grapes, it takes 8 hours of labor in Spain and 15 hours in France. For textiles, it takes 4 hours in Spain and 5 hours in France. This comparison suggests differences in labor efficiency between the two countries for these goods. Once trade begins, a possible terms-of-trade for textiles in terms of grapes is _____________ (A: 5; B: 2/5; C: 2; D: 4/5).

Comparative advantage occurs when the nation involved in the trade are not holding an absolute advantage however still gain from trade comparatively. Grapes Textile Spain 8 4 France 15 5 Spain opportunity cost in producing grapes = Quantity of textile / Quantity of grapes = 4 / 8 = 0.5 textile France opportunity cost in producing grapes = Quantity of textile / Quantity of grapes = 5 / 15 = 0.33 textile Because France opportunity cost in producing grapes is low thus has a comparative advantage in producing grapes Terms of trade: For trade to be beneficial for Spain, terms of trade should be less than 0.5 textiles for 1 grape For trade to be beneficial for France, terms of trade should be more than 0.33 textiles for 1 grape 0.3 grapes < Relative price of textile < 0.5 grapes Thus option-b will be the correct answerOption-a will be incorrect. Terms of trade should be between 0.33 and 0.5 Option-c will be incorrect. Terms of trade should be between 0.33 and 0.5 Option-d will be incorrect. Terms of trade should be between 0.33 and 0.5 Option-e will be incorrect. Terms of trade should be between 0.33 and 0.5

Answered: Goods Grapes Textiles Spain 8 4 Note:…

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Goods Grapes Textiles Spain 8 4 Note: figures are hours of labor per unit of output France 15 5

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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