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2. Suppose Italy and German can both pizzas and sausages. The combinations of two goods for both countries are presented below. ITALY PPF GERMAN PPF

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2. Suppose Italy and German can both pizzas and sausages. The combinations of two goods for both countries are presented below. ITALY PPF GERMAN PPF 40 45 35 40 SAUSAGE (IN THOUSANDS) 30 25 20 4 15 10 SAUSAGE [ IN THOUSANDS) 10 10 20 30 40 510 5 10 15 20 PIZZA ( IN THOUSANDS) PIZZA [IN THOUSANDS) a. What is the opportunity cost for Italy? 1 unit of pizza = 1 unit of sausage = What is the opportunity cost for German? 1 unit of pizza = 1 unit of sausage = b. Who has a comparative advantage in the production of pizza? Sausage? Suppose Italy and German both specialize producing only one good, what is the total output of pizza and sausage? C. Is there incentive to specialize and trade for both Italy and German? If yes and assume German wants to have 5 pizzas and 25 sausages after trading with Italy. Will both countries benefit for the trade? What will be the final result for Italy in this trade

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