Assume France and Italy decide to specialize and trade according to their comparative advantages, and 20 bushels of grapes are exchanged for 8 bushels of tomatoes. Are specialization and trade under these terms beneficial to both France and Italy

Specialization and trade based on comparative advantages is indeed beneficial to the countries of France and Italy.

Comparative advantage tells of the ability of entities to produce particular goods or offer services at a relatively lower opportunity cost than another producer.

In this instance, France has comparative advantage over Italy at the production of grapes, and Italy has over France the comparative advantage at producing tomatoes. It would be beneficial if both countries do specialise in the products that they produce at lower costs, and trade them for the other product produced by the other country.

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Yes, it's beneficial

Explanation:

Comparative advantage is the ability of a nation to produce goods at a lower opportunity cost when compared to its trading partners. A comparative advantage allows a firm sell its product at a lower price and make more sales.

In comparative advantage, the nation might not necessarily be the best at producing a particular good but it has a low opportunity cost in the production of the good for other nations to import. Comparative advantage leads to specialisation and enhances economic growth.

For example, if France can produce cheap grapes and Italy can produce cheap tomatoes, France should stop producing tomatoes and Italy should stop producing grapes. France should focus on the production of grapes while Italy should focus on tomato production. This will lead to more income for both economies since there is productive efficiency.

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