Question
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
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 ________________________.
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