Terms of trade and calculate the gains from trade

Reference no: EM1313317

Answer the next three questions on the basis of the following production possibilies data for Francia and Galacia. All data are in tons.

Francia production possibilities:

	A	B	C	D	E
Soup	60	45	30	15	0
Nuts	0	15	30	45	60

Galacia production possibilities:

	A	B	C	D	E
Soup	20	15	10	5	0
Nuts	0	15	30	45	60

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?

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 gain from trade? Explain.

Reference no: EM1313317

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