Question

S. (8) The following are the Production possibility frontiers of the U.S. and Germany The U.S Airplanes Cars Airplanes Germany Cars 10 10 a. Draw the PPF for two countries with airplanes on the vertical axis lane (in terms of cars) in the U.S.? (For this, What is the opportunity cost of each additional airp first think about how many cars they should give up to get 2 additional airplanes. And then, divide that number by 2 to see how many cars they should give up to get I additional airplane). In b. Which country has comparative advantage in airplane production? In car production? e. Show that, if each country specializes according to the principle of comparative advantage, and trade at the terms of trade of I airplane 1 car, then each country is better off. You are su d. ppos to show a point with specific numbers outside the PPF. Page 6

Answer 1

(8 a) The U..s esiman PPE 1 2 3 5 Ca b) The U.S Io airtplanes5 cars esumani 5 aiuplanes 1o Cau ince oppasc coetpete ducina aiuplane duuction ck. Ątuplanes.ushile Gesunar% pro has copätiure odsantage onu pro