In our example of France trading wine to Japan for clock radios, we arbitrarily assumed that the countries would trade at a price ratio of one bottle of wine for two clock radios. Over what range of prices can trade occur between the two countries? In the absence of trade, what is the price of clock radios in terms of wine in France? In Japan? Does your answer differ if you use Table 6.2 instead of Table 6.1 ?

Transcribed Image Text:

Table 6.1 The Theory of Absolute Advantage: An Example Wine Output Per Hour of Labor France Clock radios 3 Japan 2 1 5