Principles of Macroeconomics (11th Edition)
Principles of Macroeconomics (11th Edition)
11th Edition
ISBN: 9780133023671
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
Question
Chapter 19, Problem 1P

(a)

To determine

The production possibility frontier.

(a)

Expert Solution
Check Mark

Explanation of Solution

The production possibility frontier for country Germany and France is shown below figure 1.

Principles of Macroeconomics (11th Edition), Chapter 19, Problem 1P

In figure 1, the vertical axis of both figure measures production of guns and horizontal axis measures production of butter. Left-hand side of the figure is the PPF of the Germany and right hand side of the figure is the PPF of France.

Economics Concept Introduction

Production possibilities frontier: It is a graph that shows the combinations of output that the economy can possibly produce the given available factors of production and the available production technology.

(b)

To determine

The opportunity cost, comparative advantage, and trade.

(b)

Expert Solution
Check Mark

Explanation of Solution

The opportunity cost (OC) of producing guns for Germany can be calculated as follows:

OC=Output per worker in GermanyButterOutput per worker inGermany Gun=200,000100,000=2 Pounds of butter

Thus, the opportunity cost for Germany to produce one gun is 2 pounds of butter.

The opportunity cost of producing guns for France can be calculated as follows:

OC=Output per worker in FranceButterOutput per worker in FranceGun=75,00050,000=1.5 Pounds of butter

Thus, the opportunity cost for France to produce one gun is 1.5 pounds of butter.

The opportunity cost of producing Butter for Germany can be calculated as follows:

OC=Output per worker in GermanyGunOutput per worker in Germany Butter=100,000200,000=0.5 Guns

Thus, the opportunity cost for Germany to produce one pound of butter is 0.5 guns.

The opportunity cost of producing Butter for France can be calculated as follows:

OC=Output per worker in FranceGunOutput per worker in FranceButter=50,00075,000=0.66 Gun

Thus, the opportunity cost for France to produce one pound of butter is 0.66 guns.

France has a comparative advantage in guns and Germany has a comparative advantage in the production of butter. Thus they will engage in trade.

Economics Concept Introduction

Opportunity cost: The opportunity cost refers to the value of what one has to give up in order to choose another alternative.

Comparative advantage: It is the ability of a producer, firm or country to produce a good or service at a lower opportunity cost of production than the competitors.

(c)

To determine

The agreement of exchange.

(c)

Expert Solution
Check Mark

Explanation of Solution

If a trade’s agreement is negotiated, any agreement between 1.5 pound of butter and 2 of butter per gun will benefit both countries’ trade and specialization.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Recommended textbooks for you
  • ENGR.ECONOMIC ANALYSIS
    Economics
    ISBN:9780190931919
    Author:NEWNAN
    Publisher:Oxford University Press
    Principles of Economics (12th Edition)
    Economics
    ISBN:9780134078779
    Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
    Publisher:PEARSON
    Engineering Economy (17th Edition)
    Economics
    ISBN:9780134870069
    Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
    Publisher:PEARSON
  • Principles of Economics (MindTap Course List)
    Economics
    ISBN:9781305585126
    Author:N. Gregory Mankiw
    Publisher:Cengage Learning
    Managerial Economics: A Problem Solving Approach
    Economics
    ISBN:9781337106665
    Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
    Publisher:Cengage Learning
    Managerial Economics & Business Strategy (Mcgraw-...
    Economics
    ISBN:9781259290619
    Author:Michael Baye, Jeff Prince
    Publisher:McGraw-Hill Education
  • ENGR.ECONOMIC ANALYSIS
    Economics
    ISBN:9780190931919
    Author:NEWNAN
    Publisher:Oxford University Press
    Principles of Economics (12th Edition)
    Economics
    ISBN:9780134078779
    Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
    Publisher:PEARSON
    Engineering Economy (17th Edition)
    Economics
    ISBN:9780134870069
    Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
    Publisher:PEARSON
    Principles of Economics (MindTap Course List)
    Economics
    ISBN:9781305585126
    Author:N. Gregory Mankiw
    Publisher:Cengage Learning
    Managerial Economics: A Problem Solving Approach
    Economics
    ISBN:9781337106665
    Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
    Publisher:Cengage Learning
    Managerial Economics & Business Strategy (Mcgraw-...
    Economics
    ISBN:9781259290619
    Author:Michael Baye, Jeff Prince
    Publisher:McGraw-Hill Education