What is the range of exchange rates at which two way trade

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Reference no: EM13982300

Germany and France produce guns and butter.

Germany: 10 units labor per gun, 5 units labor per lb butter.

France: 15 units labor per gun, 10 units labor per lb butter.

a. Who has the comparative advantage in which good? You must show your work to get credit, e.g. by calculating the relative opportunity costs of guns in each economy.

b. What if the cost of labor in France is 1 Franc and in Germany is 1 Mark, and the exchange rate is 1 Mark for 1 Franc? Will two way trade take place? Explain.

c. What is the range of exchange rates at which two way trade can take place?

Reference no: EM13982300

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