Please help with part C.

Trade at China's Domestic Price. This problem illustrates an example of trade induced by comparative

advantage.

It assumes that China and France each have

1,000

production units. With one unit of production (a mix of land, labor, capital, and technology), China can produce either

8

containers of toys or

7

cases of wine. France can produce either

2

cases of toys or

7

cases of wine. Thus, a production unit in China is

four

times as efficient compared to France when producing toys, but equally efficient when producing wine. Assume at first that no trade takes place. China allocates

825

production units to building toys and

175

production units to producing wine. France allocates

175

production units to building toys and

825

production units to producing wine.

a. What is the production and consumption of China and France without trade?

b. Assume complete specialization, where China produces only toys and France produces only wine. What would be the effect on total production?

c. China's domestic price is

8

containers of toys equals

7

cases of wine. Assume China produces

8,000

containers of toys and exports

1,400

to France. Assume France produces

7,000

cases of wine and exports

1,225

cases to China. What happens to total production and consumption?