1. ThefollowingtableillustratesthenumberoflabourhoursrequiredbyFranceandChileto produce a bottle of wine and a lbs of chocolate:

Wine Chocolate

France	80	25
Chile	50	15

AssumethatbothFranceandChileeachhave1,000,000labourhoursavailablefortheproduction of wine and chocolate.

1. Which country has absolute advantage in the production of wine?Which country hasabsoluteadvantageintheproductionofchocolates?Clearlyexplainyouanswer. (5 points)
2. Whichcountryhascomparativeadvantageintheproductionofwine?Whichcountryhascomparativeadvantageintheproductiononchocolates?Clearlyexplainandshowall appropriate calculations.(5 points)
3. If transportation costs are ignored and trade is allowed, should France and Chile engageintrade? (Youdon'thavetocalculatethenumbers,juststatewhethertrade willbemutuallybeneficial.)IfFranceandChileengageintrade,whatspecific'termsof trade' should they use to realize mutually beneficial gains.(10 points)
4. Basedonthenotionsofabsoluteandcomparativeadvantageandthetermsoftrade,illustrate a trade scheme that will benefit both countries.You should provide all relevantcalculationsandillustrateyouranswerusingawell-labeledgraph.(5points)