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Assume that the world consists of two countries – US and Germany

Economics

Assume that the world consists of two countries – US and Germany. Both the countries produce two goods – Automobiles and Corn. There are three factors of production, Capital, Land and Labour. The specific factor in Automobiles is Capital while in Corn it is Land. Labour is used in the production of both the goods. Germany is assumed to be relatively more well- endowed in Capital than the US, while US is relatively more well-endowed in Land than Germany.

Answer the following:

 

  1. German farmers /landowners have been opposing free trade with the US. Why is that the case? Explain in detail using appropriate figure(s).                                                                              (10)                               
  2. How would consumers in the US gain from trade with Germany? Explain using an appropriate figure.                                                 

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