Question

Make the simplifying assumption for all the problems below that the Production Possibilities Curves are linear...

Make the simplifying assumption for all the problems below that the Production Possibilities Curves are linear (not bowed out).

[1] Consider the following two countries, Germany and France, which are involved in the production of two goods, Copper and Perfume, with the following Production Possibilities maximums. Germany can produce 520 Copper and 130 Perfume maximum units, while France can produce 480 Copper and 380 Perfume maximum units.

a.) Graph the production possibilities curves for Germany and France.

b.) What are the opportunity costs or prices for the two goods for the two countries?

c.) Which country has comparative advantage for each good?

d.) Which country should export which good if involved in trade?

e.) Show on your graph the expanded “consumption” possibilities for each country if they trade.

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