Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 3 - Part I - Interdependence and the Gains from Trade - Problems and Applications - Page 61: 7

Answer

( A)The gains are possible from trade. If X is equal to any value but 3. Then X is equal to 3 hours and both countries have the same equal opportunity cost of creating each good as each other. Thus, they don't have the incentive to trade. (B) Germany will export cars and import wine when X is 3 hours or less. This is because this is the point when France will have a comparative advantage over Germany in wine production and Germany has a comparative advantage over France in car production.
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