BUSINESS ECONOMICS

ASSIGNMENT#1

Submitted by:
Ayesha Rehman Chaudhary
MBA 1
Submitted to:
Ms Ujala
Submission date:
March 2, 2020.
 Question#01
German worker takes 400 hours to produce a car and 2 hours to produce a case of wine. A French
worker takes 600 hours to produce a car and X hours to produce a case of wine.
a.For what values of X will gains from trade be possible? Explain.
b.For what values of X will Germany export cars and import wine? Explain.

Given:
Germany Worker
Car production hours = 400
Case of Wine production hours = 2

French Worker
Car production hours = 600
Case of Wine production hours = X

PART A
To Find:
Value of X from which trade will be possible = ?

Solution:
If value of X becomes less than 3 then trade gain will be possible, it should not be equal to 3. When the
value of X becomes equal to 3, then opportunity cost for both countries i.e. Germany and France will be
same and therefore both the countries will have no benefit to trade. So it should be less than 3.

PART B
To Find:
Value of X for which Germany will export cars and import wine = ?

Solution:
When value of X becomes less than 3, Germany will export cars and import wines. At this point, Germany
will get benefit in production of car and France will get benefit in production of wine. Both countries will
exceed/profited in their production field.

Question#02
Are the following statements true or false? Explain in each case.

1. Two countries can achieve gains from trade even if one of the countries has an absolute
advantage in the production of all goods

True : Two countries can achieve gains from trade even if one of the countries has an absolute advantage
in the production of all goods, being acknowledged with the fact that both of them have a comparative
advantage in their goods (specialty) production.
2. Certain very talented people have a comparative advantage in everything they do.
False: Certain very talented people have a comparative advantage in everything they do because
comparative advantage considered the opportunity cost of one good in terms of other one. So if you have
advantage in one good, then there should be disadvantage in another good.

3. If a certain trade is good for one person, it cannot be good for the other one.
False : If a certain trade is good for one person, it cannot be good for the other one because trades based on
comparative advantage provide profit to both sides so both side traders will get benefit.

4. If a certain trade is good for one person, it is always good for the other one.
False : If a certain trade is good for one person, it is always good for the other one because trade price should
be in between the two opportunity cost in order to provide benefit to both traders.

5. If trade is good for a country, it must be good for everyone in the country.
False : If trade is good for a country, it must be good for everyone in the country. Because if a country is
producing something and getting benefit from the export of that product, there might be a chance there is no
need of the product , the country is importing. So it would not be good for the people in the country.