Suppose that France and Germany both produce cheese and wine. The following table shows combinations of the

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Suppose that France and Germany both produce cheese and wine. The following table shows combinations of the goods that each country can produce in a day.

a. Which country has a comparative advantage in producing wine? Which country has a comparative advantage in producing cheese?
b. Suppose that France is currently producing 1 bottle of wine and 6 pounds of cheese, and Germany is currently producing 3 bottles of wine and 6 pounds of cheese. Demonstrate that France and Germany can both be better off if they specialize in producing only one good and then trade for the other.France Wine (bottles) 0 1 234 Cheese (pounds) 8 6 42 2 0 Wine (bottles) 0 1 2 224 3 Germany 5 Cheese (pounds)

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Macroeconomics

ISBN: 9780135801741

8th Edition

Authors: Glenn Hubbard, Anthony Patrick O Brien

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