Question

1. Comparative Advantage (1.5 marks)

Analyze the following two countries. In one day in Germany, it takes 24 workers to produce an airplane and 6 workers to produce a boat. In one day in France, it takes 8 workers to produce an airplane and 4 workers to produce a boat. Both countries have 48 workers available each day.

1. Draw the PPF of each country for one day’s worth of production. Use a separate graph for each country. In your graphs measure airplanes on the horizontal axis and boats on the vertical axis. Carefully label each graph with the respective country’s name. Label the horizontal and vertical axis as well.
2. Answer the following questions.

What is the opportunity cost of producing an airplane in Germany?

What is the opportunity cost of producing an airplane in France?

What is the opportunity cost of producing a boat in Germany? What is the opportunity cost of producing a boat in France?

3. Answer the following questions.

Which country has an absolute advantage in airplane production?

Which country has an absolute advantage in boat production?

Which country has a comparative advantage in producing airplanes? Which country has a comparative advantage in producing boats?

4. Suppose the countries trade with each other. Which country will export airplanes? And which country will export boats? What is the range of possible airplane prices (in terms of boat)?
5. Draw the combined PPF of these two countries in a graph with airplanes on the horizontal axis and boats on the vertical axis. (Hint: Imagine that both countries allocate all of the resources to producing a single good. That will give you the x-intercept and the y-intercept. Then, consider what happens if we increase the production of the other good by one unit; i. if we increase the production of the other good by one unit, which country will produce this additional unit?)

Can't quite figure out how to do this, any help would be much appreciated!

Answer 1