Question

A German worker takes 600 hours to produce a car and 3 hours to produce a case of wine. A French worker takes X hours to produce a car and 4 hours to produce a case of wine. 

For what values of X will gains from trade be possible?

For what values of X will Germany export cars and import wine? 

Answer 1

Opportunity cost of producing car for wine:

For German worker: 600/3 = 200 wine/car

For French worker: X/4 wine/car

For trade to be possible, countries should specialize in goods.

Hence for Germany to export cars:

200 < X/4 => X > 800

Correct Ans - C,D

Q.2.

For X = 950, Germany will export cars and import Wine.