Suppose that each worker in Belgium can produce either 20 units of food per hour or 80 units of machinery per hour. At the same time, workers in France can produce either 15 units of food per hour or 30 units of machinery per hour.
a. Explain which country has an absolute advantage in the production of food. Explain which country has an absolute advantage in the production of machinery.
b. Calculate the opportunity costs for food and machinery in France and Belgium.
c. Which country, if any, has a comparative advantage in the production of food? Explain why.
d. Which country, if any, has a comparative advantage in the production of machines? Explain why.
e. Choose a mutually advantageous trading ratio, if any exists, and explain why it improves the well-being of both trading parties. If none exists, explain why.
f. Explain the consequences if France's and Belgium's trading ratio is 5 machines per unit of food.
g. Suppose workers in France and Belgium earned €20 per hour. Calculate the cost per unit of food and cost per unit of machinery in both countries. Will trade take place at these compensation levels?
h. Suppose that Belgium increased its worker productivity in both food and machinery by 300% (i.e., three times). How (if at all) would this increased productivity change your answers to Questions 8a, 8b, 8c, and 8d?