Question

Problems and applications q7 a german worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A french worker takes 600 hours to produce a car and x hours to produce a case of wine. For what values of x will gains from trade be possible? Check all that apply. 2 3 300 for what values of x will germany export cars and import wine? Check all that apply. 1 2 4

Answer 1

Answer: a. 3

b. 1 and 2

Explanation:

a. Gains from trade are possible only when there are comparative advantages in production of a good. German worker takes 400 hours to produce a car and 2 hours to produce wine. While, a French worker takes 600 hours to produce cars and X hours to produce wine.

Opportunity cost of producing car for a German worker is 200 wine cases.

Opportunity cost of producing wine for a German worker is 1/200 cars.

Gains from trade are possible only when the French worker face a different opportunity cost than the German worker for both the goods.

$200<\frac{600}{x}$

$x<3$

Correct option is 3.

b. Germany will export cars and import wine only when it has a comparative advantage in producing cars and France has a comparative advantage in producing wine. This is possible when the opportunity cost of producing cars in Germany is smaller than that of France.

Opportunity cost of car in Germany < Opportunity cost of car in France  

$200 < \frac{600}{x}$

$x<3$

Therefore, when it take France less than 3 hours to produce a case of wine, Germany will import wine from France and export Cars to France.

Correct options as 1 and 2.