Question

please answer F too :)

Q.4 (18 points) Suppose that Germany and France both produce cheese and wine. The amount of production of the two countries are shown in the following table. Assume that the opportunity cost is constant. Daily production Produce cheese only (pounds) Produce wine only (bottles) Germany 300 1.50 France 150 100 (a) Draw the PPF for Germany. Put cheese on the vertical axis, and wine on the horizontal axis. Indicate the values of both intercepts. (b) Which country has the absolute advantage in producing cheese? (c) Complete the following table (don't forget the units) Opportunity cost of producing 1 pound of cheese I bottle of wine Germany France (d) Which country has the comparative advantage in producing wine? (e) For each of the following prices, determine if France will be willing to trade. Also, determine if Germany will be willing to trade. (i) The price of 1 bottle of wine is 3 pounds of cheese. (ii) The price of 1 bottle of wine is 1 pound of cheese. (i) The price of 1 bottle of wine is 1.8 pound of cheese. ( Now France improves cheese production technology, it can now produce a maximum of 180 pounds of cheese per day. The new amount of production is shown in the following table. Daily production Produce cheese only (pounds) Produce wine only (bottles) Germany 300 150 France 180 100 Find the new range of price of a bottle of wine such that both Germany and France will be willing to trade. Then explain why Germany benefits less when France has better cheese production technology.

Answer 1

4)a)

Fig 1 : PPF for Germany

b) maximum amount of cheese produced by Germany (= 300 pounds)>Maximum amount of cheese produced by FRANCE (= 150 pounds)

Therefore Germany has absolute advantage in cheese Production over France.

c) In Germany:

Opportunity cost of 300 pound cheese = 150 wine bottles

Opportunity cost of 1 pound of cheese = 150/300 = 0.5 bottle of wine

Opportunity cost of a bottle of wine = 1/opportunity cost of a pound of cheese = 2 pound of cheese

France :

Opportunity cost of 150 pound of cheese = 100 bottles of wine

Opportunity cost of a pound of cheese = 100/150 = 2/3 = 0.667 bottle of wine

Opportunity cost of a wine bottle = 3/2 = 1.5 pound cheese.

d) A country is in comparative advantage in production of wine if opportunity of producing a pound of wine in the country is lesser than that in another country.

Opportunity cost of producing a bottle of wine in France (= 1.5 pound cheese) < Opportunity cost of producing a bottle of wine in Germany (= 2 pound cheese)

Hence, France has comparative advantage in wine production over Germany.