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 10 containers of toys or 7 cases of wine. France can produce either 2 containers of toys or 7 cases of wine. Thus, a production unit in China is five 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 800 production units to building toys and 200 production units to producing wine. France allocates 200 production units to building toys and 800 production units to producing wine.

How many containers of toys will China produce? How many wine cases will China produce? How many containers of toys will France produce? How many wine cases will France produce? What will be the total production of toys across both countries? What will be the total production of wine across both countries?

Now assume complete specialization, where China produces only toys and France produces only wine. How many containers of toys will China produce? How many wine cases will China produce? How many containers of toys will France produce? How many wine cases will France produce? What will be the total production of toys across both countries? What will be the total production of wine across both countries?