Question
The Swiss national government understands that their country produces fine chocolates, but, they somehow have not mastered making sausages. Luckily their neighbor to the west,
The Swiss national government understands that their country produces fine chocolates, but, they somehow have not mastered making sausages. Luckily their neighbor to the west, Austria, is world famous for their Vienna sausages. Now as luck would have it, Austrians love chocolate, but cannot find any good producers of it in their country. Consider then the following scenario, where Switzerland and Austria enter into trade talks over the two goods, chocolate (x) and sausages (y). Switzerland has a PPF of Y = - X + 10 Austria has a PPF of Y = - X + 15 i) Who has the absolute advantage in making chocolate? ii) Who has the absolute advantage in making sausages? iii) Make a comparative advantage table. Be precise, that is, DO NOT MESS UP X and Y, and the tradeoff should be what are they giving up to get ONE more good. iv) From your table, who will specialize in chocolate, and who will specialize in sausages? v) Will both sides agree to this trade? : 10 sausages for 15 chocolates
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started