Question

In: Economics

Suppose that France has 175,000 gallons of milk, Germany has 600,000 cookies, The U.S. has 1,000,000...

Suppose that France has 175,000 gallons of milk, Germany has 600,000 cookies, The U.S. has 1,000,000 cookies. France traded 50,000 gallons milk to Germany for 120,000 cookies; and the U.S. traded 192,000 cookies to France for 80,000 gallons of milk.

a) What is the price of milk in terms of cookies? (i.e. what is the amount of cookies you can get for one gallon of milk?)

b) What is the price of cookies in terms of milk? (i.e. what is the amount of milk you can get for one cookie?)

c) What is the final consumption opportunities for France, Germany, and the U.S. (what is the quantity of each product that is available to each of these countries as a result of trade?)

Solutions

Expert Solution

France has = 175000 gallons of milk

Germany has = 600000 cookies

US has = 192000 cokies

France traded milk for cokies with Germany

France gets 120000 cokies when he gives 50000 gallons of milk

50000 gallons of milk = 120000 cokies

so 1 gallons of milk = 120000/50000

= 2.4 cokies

price of milk in terms of cokies = 120000/50000

= 2.4 cokies

or France with US

80000 gallons of milk = 192000 cokies

so 1 gallons of milk = 192000/80000

= 2.4 cokies

price of cookies in terms of milk

120000 cokies = 50000 gallons of milk ( Germany with france)

1 cokies = 50000/120000

= 0.416

= 0.42 gallons of milk

192000 cokies = 80000 galons of milk (France with US)

1 cokies = 80000/192000

= 0.416

price of 1 cokies = 0.42 gallns of milk

total production of milk in France = 175000 gallons

France trade with Germany

france give Germany 50000 gallons of milk in exchange of 120000 cokies

after trade with france Germany have = 50000 gallons of milk and (600000 - 120000) = 480000 cokies

france now have after trade with Germany (175000 - 50000) = 1250000 gallons of milk and 120000 cokies

France trade with US

france give US 800000 gallons of milk in exchange of 192000 cokies

after trade with france US have = 80000 gallons of milk and (1000000-192000) = 808000 cokies

france after trade with (Germany and Us ) have (125000-80000) = 45000 gallons of milk and (120000+192000) = 312000 cokies

Rahul Sunny answered 8 months ago

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