Terms of trade Suppose that France and Germany both produce oil and wine

Economics Dec 17, 2020

Terms of trade Suppose that France and Germany both produce oil and wine. France's opportunity cost of producing a bottle of wine is 5 barrels of oil while Germany's opportunity cost of producing a bottle of wine is 10 barrels of oil.

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France has a lower opportunity cost of producing wine so France has a comparative advantage in wine and Germany has a comparative advantage in oil.

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