Assume That There Are Two Nations In The World, Germany and China and that they can produce only two products. Each Country Uses Half Of Its resources on each product. They Can produce the following:

Wool: Chocolate:

Germany 4000 kg 2200 kg

China 2500 kg 5000 kg

a) If the two nations do not trade, how much wool and chocolate is produced?

b) Rewrite the following sentences, and select the correct word in brackets.

i. Germany has a(n) (absolute, comparative) advantage in the production of (wool, chocolate).

ii. China has a(n) (absolute, comparative) advantage in the production of (wool, chocolate).

c) The two countries decide to trade. Make a new table that shows what will happen if the countries trade.

d) Will the countries gain from trading? Explain.

2. Assume that there are two nations in the world, Canada and India, and that they can produce only two products. Each Country uses half of its resources on each product. They Can Produce The Following:

Pair of shoes: Laptops:

Canada 8000 2000

India 10,000 20,000

a) If the two countries do not trade, how many pairs of shoes and laptops will be produced?

b) India has an absolute advantage in both products. What does this mean?

c) Calculate the opportunity cost of producing a pair of shoes for both countries.

d) Calculate the opportunity cost of producing a computer for both countries.

e) Make a new table that shows what will happen if the two countries specialize and trade.

f) Does the world gain if the two countries trade? Explain.

g) In this situation, how many pairs of shoes are lost to gain how many additional computers?

h) Make a chart to show that if India gives up some production of computers, no pairs of shoes are lost because of trading.