Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Say France is currently producing 3 bottles of wine and 18 lbs of schnitzel, and Germany is producing 3 bottles of wine and 10 lbs of schnitzel

Say France is currently producing 3 bottles of wine and 18 lbs of schnitzel, and Germany is producing 3 bottles of wine and 10 lbs of schnitzel

Economics

Say France is currently producing 3 bottles of wine and 18 lbs of schnitzel, and Germany is producing 3 bottles of wine and 10 lbs of schnitzel. Assume that France and Germany specialize by producing only the good for which they have a comparative advantage and then trade 3 bottles of wine for 11 lbs of schnitzel. After specializing and trading, France gains how many additional pounds of schnitzel by consuming the same amount of wine? Germany gains how many additional pounds of schnitzel by consuming the same amount of wine?

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

France will only specialize in schnitzel. Since for every bottle of wine not produced, France can produce 6 lbs of schnitzel, after specialization France now can produce 36 lbs of schnitzel. Similarly, Germany will specialize in wine and produce 6 bottles. Now suppose France trade 3 bottle of wine with Germany for schnitzels at the rate of 3 bottles of wine = 11 lbs of schnitzel, then Germany would receive 11 lbs of schnitzel and ships 3 bottles of wine to France. After the trade, France has 3 bottles of wine and (36 - 11) = 24 lbs of schnitzel. So France gains (24 - 18) = 6 lbs of schnitzel. Germany has (6 - 3) bottles of wine, as before, but now consumes (11 - 10 = 1) additional lb of schnitzel.

Now to understand the pattern of specialization, we need to determine the comparative advantage for each country. A country has an comparative advantage in producing a certain good if the opportunity cost (in terms of lost production of the other good) is lower. In this example, for every bottle of wine France produces, 6 lbs of schnitzel is lost. Germany, on the other hand, loses only (10 / 3 = 3.3) lbs of Schnitzel for every bottle of wine produces. Therefore, Germany has a lower opportunity cost of producing wine, and therefore has comparative advantage in producing Wine.

To see it differently, France has to lose (1 / 6) bottles of wine for every schnitzel produced. Germany, on the other hand, loses (3 / 10) bottles of wine for every schnitzel produced. So France has a lower opportunity cost of producing schnitzel and hence a comparative advantage in producing schnitzel.

Related Questions