[Related to Solved Problem #2 ] Suppose that France and Germany both produce win
ID: 1103265 • Letter: #
Question
[Related to Solved Problem
#2 ]
Suppose that France and Germany both produce wine and schnitzel. The table below shows combinations of the goods that each country can produce in a day.
France
Germany
Wine (Bottles)
Schnitzel (Pounds)
Wine (Bottles)
Schnitzel (Pounds)
0
88
0
2020
1
66
1
1616
2
44
2
1212
3
22
3
88
4
00
4
44
5
00
Who has the comparative advantage in producing wine and who has the comparative advantage in producing schnitzel?
A.Germany has a comparative advantage producing wine and schnitzel.
B.France has a comparative advantage producing schnitzel and Germany has a comparative advantage producing wine.
C.France has a comparative advantage producing wine and schnitzel.
D.France has a comparative advantage producing wine and Germany has a comparative advantage producing schnitzel.
E.Neither has a comparative advantage producing wine or schnitzel.
Suppose that France is currently producing 1 bottle of wine and 66 pounds of schnitzel and Germany is currently producing 3 bottles of wine and 88 pounds of schnitzel. Then, assume instead that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 88 pounds of schnitzel. After specialization and trade, France gains by consuming the same amount of wine and nothing additional--- pound(s) of schnitzel (enter a numeric response using an integer) and Germany gains by consuming the same amount of wine and nothing additional --- pound(s) of schnitzel.
France
Germany
Explanation / Answer
Opportunity cost of 1 wine is 22Schnitzel in France whereas 404 Schnitzle in Germany
Thus France has CA in wine whereas Germany has CA in Schnitzle. Ans is D
After specialisation france will produce 4wine and 0 Schnitzel whereas Germany will produce 2020 Schnitzel and
0 wine. After trading 3 bottles of wine for 88 pounds of Schnitzel, france will consume 1 wine and 88 Schnitzel and thus additional 22 pounds of Schnitzel.
And Germany will consume 3 wine and 2020-88=1932 schnitzel. Thus there are additional 1844 pounds of schnitzel
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