Germany Poland 0 200 400 00800 1000 200 Hats Germany has a CA in hats since the

Question

Germany Poland 0 200 400 00800 1000 200 Hats Germany has a CA in hats since the opp. cost of making a hat is lower in Germany as compared to Poland. Poland has a CA in mangoes, since the opp. cost of producing mango is lower in Poland as compared to Germany Therefore, according to the theory of comparative advantage, Germany should export HATS and Poland should export MANGO With a trade agreement in place, Germany would produce 750 hats and 200 pounds of mango. Poland would produce 400 pounds of mango Exchange Can you think of one possible exchange of hats for mango (ie. with Poland exporting mango to Germany and Germany exporting hats to Poland) which benefits both countries?

Explanation / Answer

Another Possible Exchange can be if

Poland produces 50 Hats, 350 Mangoes

Germany produces 700 Hats, 250 Mangoes

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