Suppose that each worker in France can produce 1 kg. of cheese or 0.25 cars. Also suppose that each worker in Germany country can produce 2 kg. of cheese or 2 cars. Assume that both France and Germany have 100 workers.

a.France has an absolute advantage in the production of ________________________.

Germany has an absolute advantage in the production of ________________________.

b.Calculate the relative prices of each good. (Hint: Sketch the production possibilities frontiers (PPF) for each country, if you need to. You do not have to submit them.)

Relative price of cheese in France:_______________________

Relative price of cheese in Germany:_______________________

Relative price of cars in France:_______________________

Relative price of cars in Germany:_______________________

c.Calculate the opportunity cost of each good.

Opportunity cost of cheese in France:_______________________

Opportunity cost of cheese in Germany:_______________________

Opportunity cost of cars in France:_______________________

Opportunity cost of cars in Germany:_______________________

d.France has a comparative advantage in the production of ________________________.

Germany has a comparative advantage in the production of ________________________.

e.When countries open up to trade, based on comparative advantage theory,

France will specialize in the production of ________________________.

Germany will specialize in the production of ________________________.