The following are production possibilities tables for Germany and Canada. Note that we are assuming that opportunity costs remain constant along the production possibilities frontier and that each country produces only these two products. Use the information in the tables to answer subsequent questions.
Germany's Production Possibilities Table
Production Alternatives
Product
A
B
C
D
Autos
0
40
80
120
Computers
60
40
20
0
Canada's Production Possibilities Table
Production Alternatives
Product
A'
B'
C'
D'
Autos
0
60
120
180
Computers
120
80
40
0
a.) Since Canada can produce more of either product than Germany can, is there any reason for Canada and Germany to engage in trade? Explain.
b.) If they trade, which country should specialize in which product and why?
c.) If the Germans are consuming and producing 40 autos and 40 computers before the trade and the Canadians are producing and consuming 60 autos and 80 computers before the trade, what are the potential gains from trade (if any) in terms of additional production of autos and computers for both countries combined?
The following are production possibilities tables for Germany and Canada. Note that we are assuming that opportunity costs remain constant along the production possibilities frontier and that each country produces only these two products. Use the information in the tables to answer subsequent questions.
Germany's Production Possibilities Table
|
Production Alternatives |
||||
|
Product |
A |
B |
C |
D |
|
Autos |
0 |
40 |
80 |
120 |
|
Computers |
60 |
40 |
20 |
0 |
Canada's Production Possibilities Table
|
Production Alternatives |
||||
|
Product |
A' |
B' |
C' |
D' |
|
Autos |
0 |
60 |
120 |
180 |
|
Computers |
120 |
80 |
40 |
0 |
a.) Since Canada can produce more of either product than Germany can, is there any reason for Canada and Germany to engage in trade? Explain.
b.) If they trade, which country should specialize in which product and why?
c.) If the Germans are consuming and producing 40 autos and 40 computers before the trade and the Canadians are producing and consuming 60 autos and 80 computers before the trade, what are the potential gains from trade (if any) in terms of additional production of autos and computers for both countries combined?
Related textbook solutions
Related questions
.A production possibilities table for DVDs and computers is shown below.
|
|
Production alternatives |
|||||
Type of production |
A |
B |
C |
D |
E |
|
Computers |
0 |
20 |
40 |
60 |
80 |
|
DVDs |
80 |
75 |
60 |
35 |
0 |
|
Instructions: Enter your answers as absolute and whole numbers
a. What is the opportunity cost of computers when moving from point A to point B?
b. What is the opportunity cost of computers when moving from point B to point C?
C. What is the opportunity cost of computers when moving from point C to point D?
d. What is the opportunity cost of computers when moving from point D to point E?
e. As we produce more computers, opportunity costs are...........
Q2. (35 points) The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.:
| Textiles | Autos | |
| United Kingdom | 16 | 4 |
| United States | 6 | 3 |
A)Which country has an absolute advantage in textiles and which country has an absolute advantage in autos?
B)What is the autarky price ratio of autos relative to textiles in each country?
C)Which country has a comparative advantage in textiles and which country has a comparative advantage in autos?
D)Which product should each country export?
E)Suppose the United States has 300 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States.
F)Suppose the international price is set at 1 auto:3 units of textile and the U.S. decides to completely specialize at producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade and the export and import quantities. For each unit of export good, how much does the U.S. gain (measured in terms of the other good)?
G)Discussion: At what level of international price ratio will all the benefits from trade accrue to the United States?
Your answer:
Problem 1
Below is a production possibilities table for consumer goods (food) and capital goods (machinery). Graph the data using Excel and then answer the following questions.
|
A |
B |
C |
D |
E |
F |
|
|
FOOD |
0 |
10 |
20 |
30 |
40 |
50 |
|
MACHINES |
150 |
140 |
120 |
90 |
50 |
0 |
(a) What are the specific assumptions that underlie the production possibilities curve?
(b) What would be the cost of more food if the economy is at point C? What would be the cost of producing more machinery? How does the shape of the production possibilities curve reflect the law of increasing opportunity costs?
(c) What if this hypothetical economy were producing only 9 food and 130 machines and it was depicted by this production possibilities table and curve? What conclusions could be drawn about this economy's resource utilization?
(d)Can this economy produce outside its current production possibilities? How can technological changes affect the production possibilities curve? How can international trade permit consumption above its production possibilities curve?
