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The following are production possibilities tables for Germany and Canada. Note that we are assuming that opportunity costs remain constant along the production possibilities frontier and that each country produces only these two products. Use the information in the tables to answer subsequent questions.

Germany's Production Possibilities Table

 

Production Alternatives

Product

A

B

C

D

Autos

0

40

80

120

Computers

60

40

20

0

Canada's Production Possibilities Table

 

Production Alternatives

Product

A'

B'

C'

D'

Autos

0

60

120

180

Computers

120

80

40

0

a.) Since Canada can produce more of either product than Germany can, is there any reason for Canada and Germany to engage in trade? Explain.

b.) If they trade, which country should specialize in which product and why?

c.) If the Germans are consuming and producing 40 autos and 40 computers before the trade and the Canadians are producing and consuming 60 autos and 80 computers before the trade, what are the potential gains from trade (if any) in terms of additional production of autos and computers for both countries combined?

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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