Related to Solved Problem #2 Suppose that France and Germany both produce wine a
ID: 1123898 • Letter: R
Question
Related to Solved Problem #2 Suppose that France and Germany both produce wine and schnitz The able below shows combinations he goods that each country can pro cena day France Germany Wine (Bottles) Schnitzel (Pounds)|Wine (Bottles) Schnitzel (Pounds) 20 16 12 Who has the comparative advantage in producing wine and who has the comparative advantage in producing schnitzel? A. France has a comparative advantage producing wine and Germany has a comparative advantage producing schnitzel. O B. France has a comparative advantage producing wine and schnitzel. O C. France has a comparative advantage producing schnitzel and Germany has a comparative advantage producing wine. O D. Neither has a comparative advantage producing wine or schnitzel. O E. Germany has a comparative advantage producing wine and schnitze e and 8 pounds of s hen, assume instead tha Franc and Germany specialize y rodu ngon . Suppose hat France is current y producing bot e o wie and 6 pounds o schnitzel an ermany s currently producing 3 b es the good for which they have a comparative advantage and then trade 3 bottles of wine for 10 pounds of schnitzel w n ze After specialization and trade, France gains by consuming the same amount of wine andadditional pound(s) of schnitzel (enter a numenic response using an integer) and Germany gains by consuming the same amount of wine and additional pound(s) of schnitzel.Explanation / Answer
If France puts all its resources in the production of Wine, it produces 4 bottles of wine. On the other hand, if it puts all its resources in the production of schnitzel, it produces 8 pounds of schnitzel. Therefore, France's opportunity cost of producing 1 bottle of wine = 8/4 = 2 pounds of schnitzel. Moreover, France's opportunity cost of producing 1 pound of schnitzel = 4/8 = 0.5 bottles of wine.
If Germany puts all its resources in the production of Wine, it produces 5 bottles of wine. On the other hand, if it puts all its resources in the production of schnitzel, it produces 20 pounds of schnitzel. Therefore, Germany's opportunity cost of producing 1 bottle of wine = 20/5 = 4 pounds of schnitzel. Moreover, Germany's opportunity cost of producing 1 pound of schnitzel = 5/20 = 0.25 bottles of wine.
The country which has lower opportunity cost is said to have a comparative advantage in the production of a commodity. France has a lower opportunity cost in the production of wine and Germany has a lower opportunity cost in the production of schnitzel.
So, the right answer is option A: France has a comparative advantage producing wine and Germany has a competitive advantage producing schnitzel.
If France and Germany specialize according to their respective comparative advantage, France will be able to produce 4 bottles of wine and Germany will be able to produce 20 pounds of schnitzel. However, France currently consumes only 1 bottles of wine and 6 pounds of schnitzel. So, France can trade the additional 3 bottles (4 - 1) of wine with Germany in the exchange of 8 pounds of schnitzel. So, France will not consume 8 - 6 = 2 additional pounds of schnitzel.
So, France will consume 2 additional pounds of schnitzel.