Question

Referring to table 3, in GERMANY it takes four workers to produce 1,000 pairs of gloves, but it takes five Italian workers to do so and It takes one GERMAN worker to produce 1,000 Steamers, but it takes four Italian workers to do so.

Country	Number of Workers needed to produce 1,000 units — Gloves	Number of Workers needed to produce 1,000 units —Steamers
Germany	4 workers	1 worker
Italy	5 workers	4 workers
Table 1. Resources Needed to Produce Glovesand Refrigerators

Table

1. Complete table 4 if you consider a situation where Germany and Italy each have 40 workers. (1 Mark)

Table 4. Production Possibilities before Trade

Country	Gloves Production — using 40 workers		Steamers Production — using 40 workers
Germany		or
Italy		or

Table 5 provides each nation’s production preferences.

Country	Current gloves Production	Current steamers Production
Germany	5,000	20,000
Italy	4,000	5,000

Consider the situation where Germany exports 4,000 steamers to Italy in exchange for 1,800 pairs of gloves. (Terms of exchange for a straight line PPF).

2. Complete table 6, based on the nation’s production preferences (table 3) and terms of exchange between the two countries. (1 Mark)

Country	Gloves consumption after trade	Steamers consumption after trade
Germany
Italy

                                      Table 6

Answer 1

4 workers in Germany can produce 1000 gloves. So, 1 worker in Germany can produce 1000/4 = 250 gloves. 40 workers in Germany can produce = 250*40 = 10,000 gloves

1 workers in Germany can produce 1000 steamers. 40 workers in Germany can produce = 40*1000 = 40,000 steamers.

5 workers in Italy can produce 1000 gloves. So, 1 worker in Italy can produce 1000/5 = 200 gloves. 40 workers in Italy can produce = 200*40 = 8,000 gloves

4 workers in Italy can produce 1000 steamers. 40 workers in Italy can produce = 250* 40 = 10,000 steamers.

Consider the situation where Germany exports 4,000 steamers to Italy in exchange for 1,800 pairs of gloves. So, Germany now has 16,000 steamers and 6,800 gloves.

Italy now has 2,200 gloves and 9,000 steamers

after trade

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