Assuming a routine manufacturing activity, present journal entries (account titles only) for each of the following transactions:
1 answer:
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Answer:
France has a comparative advantage in the production of stained glass.
Denmark has a comparative advantage in production of fish.
France will gain from trade as long as it gets more than 3 pounds of fish for each pane of stained glass.
Denmark can gain from trade if it gets more than 0.09 pane of stained glass for each pound of fish it exports.
4 pounds of fish per pane of stained glass.
7 pounds of fish per pane of stained glass.
Explanation:
France and Denmark both produce fish and stained glass.
France's opportunity cost of producing a pane of stained glass
= 3 pounds of fish
Denmark's opportunity cost of producing a pane of stained glass
= 11 pounds of fish
France's opportunity cost of producing a pound of fish
=
= 0.33 pane of stained glass
Denmark's opportunity cost of producing a pound of fish
=
= 0.09 pane of stained glass
France has a lower opportunity cost of producing stained glass so we can say it has a comparative advantage in the production of stained glass. While Denmark has a comparative advantage in the production of fish.
If both countries start to trade with each other, France will gain from trade as long as it gets more than 3 pounds of fish for each pane of stained glass.
While Denmark can gain from trade if it gets more than 0.09 pane of stained glass for each pound of fish it exports.
Both the countries will gain from trade if the trade price lies between their opportunity cost. both countries will gain from trade if the price is 4 pounds of fish per pane of stained glass or 7 pounds of fish per pane of stained glass.