What are the upper and lower bounds for the trade price of cheese?

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Use the information in this table on labor productivities in France and Germany to answer what are the upper and lower bounds for the trade price of cheese?

Output per Hour Worked

France

Germany

Cheese

2 kilograms

1 kilogram

Cars

0.25

0.5

Nov 9th, 2014

The productivity of France is higher in cheese.

The productivity of Germany is higher in car

The France productivity = 0.25 car/2 kilo =(1/4)/2 =1/8 car per kilo

The German productivity = 0.5 car/1 kilo = 1/2 car per kilo

Hence price will be somewhere between 1/8 car per kilo to 1/2 car per kilo

Hence price will be somewhere between  0.125 car per kilo to 0.5  car per kilo

 

Nov 9th, 2014

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