Suppose that China and Germany each have 1,000,000 labour hours available for the pro- duction of...

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Suppose that China and Germany each have 1,000,000 labour hours available for the pro- duction of cell phones and computers. The number of labour hours needed to produce cell phones and computers in China and Germany are given in the table below: China Cell Phones 5 Computers 10 Germany 10 15 1. Draw the production possibilities frontiers for China and Germany in the absence of trade. If each country devotes half its labour to the production of cell phones and computers, how many units of each good will they be able to produce? 2. A country is said to have absolute advantage in the production of a good if it requires fewer resources to produce that good compared to other countries. Which country has absolute advantage in the production of Cell Phones? Which country has absolute advantage in the production on Computers? Explain. 3. Which country has comparative advantage in the production of Cell Phones? Which country has comparative advantage in the production on Computers? Explain. 4. If transportation costs are ignored and trade is allowed, will China and Germany engage in trade? Illustrate your answer using a specific trade strategy, that is, (a) production of computers and cell phones in Germany; (b) production of computers and cell phones in China; and (c) the terms of trade (the rate at which cell phones are exchanged for computers) that will lead to a mutually beneficial trade. Finally, illustrate how China and Germany move beyond their respective production pos- sibilities curves when they engage in trade. Suppose that China and Germany each have 1,000,000 labour hours available for the pro- duction of cell phones and computers. The number of labour hours needed to produce cell phones and computers in China and Germany are given in the table below: China Cell Phones 5 Computers 10 Germany 10 15 1. Draw the production possibilities frontiers for China and Germany in the absence of trade. If each country devotes half its labour to the production of cell phones and computers, how many units of each good will they be able to produce? 2. A country is said to have absolute advantage in the production of a good if it requires fewer resources to produce that good compared to other countries. Which country has absolute advantage in the production of Cell Phones? Which country has absolute advantage in the production on Computers? Explain. 3. Which country has comparative advantage in the production of Cell Phones? Which country has comparative advantage in the production on Computers? Explain. 4. If transportation costs are ignored and trade is allowed, will China and Germany engage in trade? Illustrate your answer using a specific trade strategy, that is, (a) production of computers and cell phones in Germany; (b) production of computers and cell phones in China; and (c) the terms of trade (the rate at which cell phones are exchanged for computers) that will lead to a mutually beneficial trade. Finally, illustrate how China and Germany move beyond their respective production pos- sibilities curves when they engage in trade.

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1 Production Possibilities Frontiers PPFs For China Cell Phones 5 labor hours Computers 10 labor hours For Germany Cell Phones 10 labor hours Computer... View the full answer