France is capital abundant and Italy is labor abundant. Shoes are labo

France is capital abundant and Italy is labor abundant. Shoes are labor intensive and wheat is capital intensive.

Draw diagrams to illustrate the pre- and post-trade equilibria for each of the two countries including the production points, the consumption points, the international price, and the volumes of exports and imports for each. Be sure to identify which country has comparative advantage in which good. Which factors gain and which lose when trade is opened between the two countries? Explain carefully.

ANSWER

France