Question

In: Economics

Suppose a worker in Germany can produce 56 computers or 280 tons of grain per month....

Suppose a worker in Germany can produce 56 computers or 280 tons of grain per month. Suppose a worker in Poland can produce 100 computers or 300 tons of grain per month.

a. Graph the PPF/PPC for each country on one graph.

b. What is the opportunity cost of a computer in Germany? _________

c. What is the opportunity cost of a computer in Poland? ________

d. What is the opportunity cost of a ton of grain in Germany? ______

e. What is the opportunity cost of a ton of grain in Poland? ______

f. Which country has the comparative advantage in computers? _______

g. Which country has the comparative advantage in grain? _______

h. What is a reasonable range for the rate of exchange of computers for grain? (In other words, what might be the terms of trade that both nations would agree to? Be sure to include the minimum and maximum values.)

Solutions

Expert Solution

a)

b. Opportunity cost of a computer in Germany= 280/56=5 tons of grains

c. Opportunity cost of a computer in Poland=300/100=3 tons of grains

d. Opportunity cost of a ton of grain in Germany=56/280=0.2 computers

e. Opportunity cost of a ton of grain in Poland= 100/300=0.33 computers

f. Which country has the comparative advantage in computers?

Opportunity Cost of computer production is lower in Poland. We can say that Poland has the comparative advantage in computers.

g. Which country has the comparative advantage in grain?

Opportunity Cost of grain production is lower in Germany. We can say that Germany has the comparative advantage in grain.

h. What is a reasonable range for the rate of exchange of computers for grain? (In other words, what might be the terms of trade that both nations would agree to? Be sure to include the minimum and maximum values.)

Range of rate of exchange of computers should be between the opportunity cost in these two countries.

1 computer should be exchanged for a somewhere between 3 tons and 5 tons of grain.

Rahul Sunny answered 2 years ago
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