What would you expect the pattern of trade to look like

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Reference no: EM131778080

Question: Suppose that France and Germany both have 100 units each of capital and labor, and that they share the same CRS technology with which they produce wine and cheese. However, tastes differ in the two countries: consumers in Germany have a strong preference for cheese, and consumers in France have a strong preference for wine. Will there be trade? What would you expect the pattern of trade to look like? Do you think we can still talk about comparative advantage in this case?

(To answer, first draw the PPF - how do they look different/the same? - and then the indifference curves - how do they look different/the same? How do the price lines look? Without even drawing the PPFs and the indifference curves, where would you expect the relative price of cheese to be higher/lower?)

Reference no: EM131778080

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