Question

​*MULTIPLE PART QUESTION*

There are two countries in the world, France and Germany, and both can use workers to produce either cheese or bread. France can produce either a ton of cheese or a ton of bread with 3 workers. Germany can produce a ton of cheese with 6 workers and a ton of bread with 3 workers. France has 120 workers; Germany has 150 workers. Initially, there is no trade between the two countries.

There are two countries in the world, France and Germany, and both can use workers to produce either cheese or bread. France can produce either a ton of cheese or a ton of bread with 3 workers. Germany can produce a ton of cheese with 6 workers and a ton of bread with 3 workers. France has 120 workers; Germany has 150 workers. Initially, there is no trade between the two countries What is each country's cost of producing bread? Write the production possibilities frontier in the form that shows the cost of producing each good. Draw the production possibilities frontier for each country. How much bread can France produce if it produces 10 tons of cheese? How much bread can Germany produce if it produces 10 tons of cheese? What is the opportunity cost of producing bread for each country? Suppose the relative price is 1.25 tons of cheese for 1 ton of bread. Are they willing to trade? If so, who exports bread? Who exports cheese? Assuming they do specialize and trade, draw the new PPF under trade for each country Suppose the relative price is 1.25 tons of bread for 1 ton of cheese. Are they willing to trade? If so, who exports bread? Who exports cheese? Assuming they do specialize and trade, draw the new PPF under trade for each country Suppose the price of bread in both countries is $1000/ton. Before the Treaty of Rome (meaning with no trade), what is the price of 1 ton of cheese in France? What is the price in Germany? Suppose that after the Treaty of Rome (with trade) the price of bread remains at $1000/ton What would be the price of cheese under the relative price in Question 4? How about under the relative price of Question 5? [Hint: If a country refuses to trade its price under trade is the same as under autarchy.] Suppose that before trade France produced 30 tons of bread and 10 tons of cheese. Assuming all workers are paid the same wage and labor is the only input of production, what is the nominal wage before trade? What is the nominal wage after trade? 1. 2. 3. 4. 5. 6. 7. 8. 30 10 9. Suppose that the average French consumer buystons of bread and of cheese. (This 120 120 is 500 pounds of bread and 166.66 pounds of cheese. The French love their bread and cheese...) Assuming the year before trade is the base year, what is France's real wage before and after trade?