Assume that Japan and France each have 1,000 production units. With one production unit, Japan can produce either 10 containers of toys or 7 cases of wine. Japan can produce either 2 cases of toys or 7 cases of wine. Thus, a production unit in Japan is 5 times as efficient compared to France when producing toys, but equally efficient when producing wine. Assume at first that no trade takes place. Japan allocates 800 producing 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.
What is the production and consumption of Japan and France in toys and wine without trade?
Assume complete specialization, where Japan produces only toys and France produces only wine. What would be total production in each country?
After specialization, Japan exports 2000 containers of toys to France. The term of trade is 6 containers of toys for 7 cases of wine. What happens to the consumption of both products in each country?