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Suppose France has 1000 workers available and each of them is able and willing to work exactly 3 hours per week. France's technology is described in Case Z from Exercise 3. Suppose Germany has 2000 worker-hours available for production and each of them is able and willing to work exactly 2 hours per week. Germany's technology is described in Case Z from Exercise 3. Imagine we have a free trade agreement between the two countries.

a) Derive the PPF for both countries and graph them (on the same graph)?

b) Who is specializing in Bourbon according to Comparative Advantage?

Now imagine that a law passes in France such that French workers MUST work a total of 2 hours per week.

c) Derive the PPF (for 1 week) for both countries and graph them (on the same graph)?

d) Who is specializing in Bourbon according to Comparative Advantage now? Why?

Now imagine that the German government imposes workplace safety laws that impact the production of Bourbon, but not Cigars; the amount of hours of labor required to produce Bourbon is now 10 in Germany

e) Derive the PPF (for 1 week) for both countries and graph them (on the same graph)?

f) Who is specializing in Bourbon according to Comparative Advantage now? Why?

Microeconomics, Economics

  • Category:- Microeconomics
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