what is the relative price

2008-04-14 1:03 am

if France and Germany fully use all the factors of production available to them, and utilize the best technology available, then the maximum amount of meat or of wheat they could produce is:
France ---1200 meat or 800 wheat
Germany --- 500 meat or 1500 wheat

In a situation of autarky,France produces and consumers 400 wheat and 600 meat,while Germany produces and consumers 600 wheat and 300 meat.

問:what is the relative price of meat in each country in a situation of autarky?

回答 (1)

Jan

2008-04-14 8:24 am

✔ 最佳答案

According to the law of comparative advantage,
France has a lower opportunity cost of
producing 1 meat(0.667(=800/1200)wheat)
it should specialize in producing meat
It should export meat and improt wheat

Germany has a lower opportunity cost of
producing 1 wheat(0.333(=500/1500)meat)
it should specialize in producing wheat
It should export wheat and improt meat

France has:1200-600=600 meat for trading
Germany has:1500-600=900 wheat for trading

The relative price of meat
France: trading 600 meat for 400 wheat
1meat = 0.667wheat
Germany:trading 900 wheat for 300 meat
3 wheat= 1 meat

So,the relative price of meat in France is 0.667 unit of wheat
The relative price of meat in Germany is 3 units of wheat

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