Table 1: Production Efficiency: Number of Units of Output per One Standardized Unit of Input

Question

Wine Cheese
France 60 36
Germany 30 24

1.Which country should specialize in the production of Wine? Which country should specialize in the production of Cheese? Why? Calculate the comparative efficiency ratios for each product and write them in a table

2.What is the minimum amount of France’s specialized product that Germany would agree to import in exchange for an export of 48 units of its (Germany’s) specialized product, so Germany would benefit from trade? Briefly explain your answer

3.What is the maximum amount of France’s specialized product that France would be willing to export to Germany for an import of 48 units of Germany’s specialized product, so France would benefit from trade? Briefly explain your answer

4. Assume that each country used a total of 4 standardized units of input in production. Explain why would both countries benefit from specialization and trade (10).
a. Show calculations to indicate the global gain from trade (use table format to show pre- and post-specialization totals, assuming an even split of units of input before specialization). For after specialization and trade, use a scenario assuming that the two countries agreed to exchange 102 units of Wine for 72 units of Cheese. What would be the actual gain/loss for each country in terms of the units of Wine? Which country would the gain/loss out on Cheese? By how much?
b. Show in a table format by how much would each country benefit in terms of their units of input after specialization and trade.
c. Assume that in both countries the price of wine is 3 euros per unit and cheese is 4.25 euros per unit. Show tables and calculations to prove that global value of production and monetary gain for each country after specialization and trade has indeed increased.