France and Italy only trade with each other. Each produces wine and bread. The p

Question

France and Italy only trade with each other. Each produces wine and bread. The production of bread is relatively capital intensive, and the production of wine is relatively labor intensive. France is relatively abundant in capital, while Italy is relatively abundant in labor.
Which of the following statements is correct? A) Italy has a larger labor force than France. B) France has a larger labor force than Italy. C) The ratio of Italy's total capital stock to its labor force is smaller than the same ratio for France. D) The ratio of Italy's total capital stock to its labor force is larger than the same ratio for France. France and Italy only trade with each other. Each produces wine and bread. The production of bread is relatively capital intensive, and the production of wine is relatively labor intensive. France is relatively abundant in capital, while Italy is relatively abundant in labor.
Which of the following statements is correct? A) Italy has a larger labor force than France. B) France has a larger labor force than Italy. C) The ratio of Italy's total capital stock to its labor force is smaller than the same ratio for France. D) The ratio of Italy's total capital stock to its labor force is larger than the same ratio for France.

Explanation / Answer

C. Capital to Labour ratio measures the ratio of capital employed to labour employed. For Italy, since the labor is abundant, the capital to labor ratio will be smaller than France's.

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