Assume that Germany has 1200 units of labor available and it can produce two goods: apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. France has a labor force of 800. France’s unit labor requirement in apple production is 5, while in banana production it is 1.   Suppose that Germany does not specialize in the production of the commodity in which it has a comparative advantage but it opens up for trade at the autarky production level. Compare the welfare of the country with the case when country specializes.

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.