Question

Consider two countries: The Netherlands and Germany. - Each country can produce bicycles and cars by its resources. - If Germany allocates all of its resources to car production, it can produce 16 cars and hence no bicycles. And if Germany decides to allocate all resources to produce bicycles, it can produce 8 bicycles and hence, no cars. - If the Netherlands allocates all of its resources to produce cars, it can produce 10 cars and hence no bicycles. And if the Netherlands decides to allocate all resources to produce bicycles, it can produce 10 bicycles and hence, no cars. - Please note that the production possibilities (PPF) of both countries are linear. a) Draw the PPFs of Germany and the Netherlands. (You can draw both PPFs in one figure together or in two separate figures) b) Which country has the absolute advantage in producing cars over the other country? c) Which country has the absolute advantage in producing bicycles over the other country?

Answer 1

From the given information in the question , we can get the table as shown which shown the maximum production of bicycles or cars by Netherlands and Germany.

	Cars	Bicycles
Netherlands	10	10
Germany	16	8

(a) By plotting these points , we get the PPFs of both countries.

(b) Germany has an absolute advantage in producing cars over the other country because it can produce more cars than Netherlands.

(c) Netherlands has an absolute advantage in producing bicycles over the country because it can produce more bicycles than Germany.