QN 1. Suppose France and Italy can produce the following products given the resources they have (see Table 1). In autarky France produces and consumes 80 units of textiles and 50 units of cars, while Italy produces and consumes 81 units of textiles and 66 units of cars. Based on this data and theory of comparative advantage, answer the following (assume constant opportunity cost):

Table 1

Product France Italy

Textiles in tons (T) 160 180

Cars (C) 100 120

(a): State which country has comparative advantage in Textiles, and which has comparative advantage in Cars

(b): Suppose now they start to trade and both countries completely specialize, show (compute) the production gains from specialization

(d): What is the price range Cars will trade at (i.e. terms of trade limits)?