Arrange the Above Labor Productivities in the Following Table

HOMEWORK #1 ECON 208 FALL 2007

DUE TUESDAY, SEPTEMBER 10, 2007

Suppose France and Germany can produce two goods, Schnitzel and/or Wine. In France one hour of labor can produce two pounds of schnitzel or one hour can produce a single bottle of wine. In Germany one labor hour produces either three pounds of schnitzel or one bottle of wine.

Arrange the above labor productivities in the following table. Units/hour Schnitzel Wine labor (pounds) (bottles) France

Germany

From this information, fill in the following tables.

1) Which country has the Absolute Advantage in the production of Schnitzel and in Wine? Schnitzel Wine Explain your choices.

2) Calculate the opportunity costs of producing Schnitzel and Wine in each country. Opportunity Schnitzel Wine Explain how you derived your Cost Bottles/Pound Pounds/Bottle answers. France

Germany

3) Which country has the Comparative Advantage in the production of Schnitzel and in Wine? Explain your choices. Schnitzel Wine

4) Suppose France is endowed with 40 hours of labor and Germany with 50 hours of labor. Show how much of each good can they produce by filling in the following table.

France Germany Schnitzel Wine Schnitzel Wine (pounds) (bottles) (pounds) (bottles) 80 0 0 10 120 40 30 0 40 0 50

5) Placing Wine on the horizontal axis and Schnitzel on the vertical axis, draw the production possibilities frontier for France and Germany.

Schnitzel Schnitzel

France Wine Germany Wine

6) Suppose France and Germany trade. Which good will each country specializes in and export? Place an X on your PPFs to show specialization. If the terms of trade between the two countries are 2 ½ pounds of schnitzel per bottle of wine, show that there are mutual benefits to trade.