Answer to Question #175169 in Economics for Vivianne

Question

c.     Think about international trade. France has a comparative advantage over the UK with regards to growing wine, so we might expect the UK to import wine from France and export other goods to France for which the UK has a comparative advantage. 

i.         Explain what is meant by France having a comparative advantage over the UK with respect to producing wine.  [10 marks]

Given that France has comparative advantage, what might a marketing campaign focus on to enable British wineries to export their wine to France. Answer in the context of comparative advantage and models of trade

Answer 1

Let us draw an analogy with the following example, proposed by Ricardo. According to the theory of absolute advantages, only Portugal will export both cloth and wine to England. But according to Ricardo's thought, confirmed by the practice of those days, both countries will trade in cloth and wine. Wine in England costs 1.2 times more expensive than cloth, so it is more profitable for England to export cloth and import wine at the expense of the funds received, which means to import cloth. If Portugal invests all of its human capital in wine production, it will receive more cloth from England for it than it would have produced itself. Accordingly, if England invested all her human capital in the production of cloth, she would receive more wine from Portugal for it than she would have produced herself. None of the countries fully specializes, of course, but there is a natural tendency towards specialization.

If we consider the example of France and England in the wine trade, we get the same situation. However, let's not forget that wine is an exclusive product, its qualities are different depending on the soil on which the grapes grew, on the humidity of the area in which the vine grows. The main marketing argument in the sale of wine has always been and is these exclusive qualities.