Production Possibilities Tables for Germany and Canada (note that we are assuming that opportunity costs remain constant along the production possibilities frontier), and that each country produces only these two products).
Germany's Production Possibilities Table
|
|
Production Alternatives
|
|
Product
|
A
|
B
|
C
|
D
|
|
Autos
|
0
|
40
|
80
|
120
|
|
Computers
|
60
|
40
|
20
|
0
|
Canada's Production Possibilities Table
|
|
Production Alternatives
|
|
Product
|
A'
|
B'
|
C'
|
D'
|
|
Autos
|
0
|
60
|
120
|
180
|
|
Computers
|
120
|
80
|
40
|
0
|
1. Since Canada can produce more of either product than Germany can, is there any reason for Canada and Germany to engage in trade? Explain.
2. If they trade, which country should specialize in which product and why?
If the Germans are consuming and producing 40 autos and 40 computers before trade and the Canadians are producing and consuming 60 autos and 80 computers before trade, what are the potential gains from trade (if any) in terms of additional production of autos and computers for both countries combined?