European and Chinese workers can each produce 4 capital goods a year. A European worker can produce 10 tonnes of grain a year, whereas a Chinese worker can produce 5 tonnes of grain a year. To keep things simple, assume that Europe and China have 100 million workers each.

a. For this situation, construct a table analogous to Table 17.1.

b. Graph the PPF of the European and Chinese economies.

c. For Europe, what is the opportunity cost of a car? Of grain? For China, what is the opportunity cost of a car? Of grain?

Put this information in a table analogous to Table 17.3.

d. Which has an absolute advantage in producing capital goods? In producing grain?

e. Which has a comparative advantage in producing capital goods? In producing grain?

f. Without trade, half of Europe and China’s workers produce capital goods and half produce grain. What quantities of capital goods and grain do Europe and China produce?

g. Starting from a position without trade, give an example in which trade makes both Europe and China better off.

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TABLE 17.1 The Production Opportunities of Johan the Gardener and Silvia the Farmer Time needed to make 1 kg of: Amount of meat or potatoes Meat Potatoes Meat Johan Silvia 6 hrs/kg 1.5 hrs/kg 8 kg 2 hrs/kg 1 hr/kg 24 kg produced in 48 hours Potatoes 32 kg 48 kg