Question

Assume France and Italy decide to specialize and trade according to their comparative advantages, and 20 bushels of grapes are exchanged for 8 bushels of tomatoes. Are specialization and trade under these terms beneficial to both France and Italy

Answer 1

Answer: Yes, it's beneficial

Explanation:

Comparative advantage is the ability of a nation to produce goods at a lower opportunity cost when compared to its trading partners. A comparative advantage allows a firm sell its product at a lower price and make more sales.

In comparative advantage, the nation might not necessarily be the best at producing a particular good but it has a low opportunity cost in the production of the good for other nations to import. Comparative advantage leads to specialisation and enhances economic growth.

For example, if France can produce cheap grapes and Italy can produce cheap tomatoes, France should stop producing tomatoes and Italy should stop producing grapes. France should focus on the production of grapes while Italy should focus on tomato production. This will lead to more income for both economies since there is productive efficiency.

Answer 2

Answer:yes. it is beneficial to both countries.

Explanation:comparative advantage helps a country to produce goods and services at a lower opportunity cost than that of trade partners. It gives an economy / country the ability to sell goods and services at a lower price than its competitors and realize stronger sales margin in return.