Answer: a. 3
b. 1 and 2
Explanation:
a. Gains from trade are possible only when there are comparative advantages in production of a good. German worker takes 400 hours to produce a car and 2 hours to produce wine. While, a French worker takes 600 hours to produce cars and X hours to produce wine.
Opportunity cost of producing car for a Greman worker is
[tex]400 cars = 2 wine case Opportunity cost of 1 car = \frac{400}{2} = 200[/tex] wine case
Opportunity cost of producing wine for a German worker is
[tex]1 car = 200 wine cases \frac{1}{200} cars = 1 wine case[/tex]
Gains from trade are possible only when the French worker face a different opportunity cost than the German worker for both the goods.
[tex]200 < 600/X X<600/200 X<3[/tex]
Correct option is 3.
b. Germany will export cars and import wine only when it has a comparative advantage in producing cars and France has a comparative advantage in producing wine. This is possible when the opportunity cost of producing cars in Germany is smaller than that of France.
Opportunity cost of car in Germany < Opportunity cost of car in France
[tex]200 < 600/X X<600/200 X<3[/tex]
Therefore, when it take France less than 3 hours to produce a case of wine, Germany will import wine from France and export Cars to France.
Correct options as 1 and 2.
