Question91 Consider the following production data for Germany and Spain:[table]
| Germany | Spain Labour force | 50 | 180 Bottles of cider per worker | 80 | 25 Loaves of bread per worker | 8 | 2
[/table] Assume that each country spends half of their income in each good. Please consider cider to be the numeraire good.Choose the best alternative based on the information from the previous Table Under Free Trade, the aggregate production of bread is 4500 Under Free Trade, the aggregate production of bread is 400 Under Free Trade, the aggregate production of bread is 11 Under Free Trade, the aggregate production of bread is 200 Under Free Trade, the aggregate production of bread is 4900 ResetMaximum marks: 2 Flag question undefined

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BlackTom AI · Accepted Answer

Restating the question and options to set the stage: In this problem, we have production data for Germany and Spain, with labor forces and output per worker for cider and bread. Under free trade, each country specializes according to comparative advantage, and we’re told the context that each country spends half of its income on each good, with cider treated as the numeraire good. The question asks: Under Free Trade, the aggregate production of bread is which of the following?

Option analysis, step by step:

Option A: Under Free Trade, the aggregate production of bread is 4500
- This would imply a total bread output of 4500 units. Given the data, Germany has a maximum of 8 breads per worker and Spain 2 breads per worker. Even if one country produced all the bread, the maximum possible bread output across both countries would be 50*8 + 180*2 = 400 + 360 = 760 breads in total if all labor were devoted to bread. Therefore 4500 exceeds the total productive capacity by a wide margin, making this option implausible under the given data.

Option B: Under Free Trade, the aggregate production of bread is 400
- Here we would have Germany (with 50 workers at 8 breads per worker) producing 400 breads and Spain producing none. This aligns with a plausible outcome if Germany specializes in bread while Spain specializes in the other good, cider. We must check whether this allocation matches the comparative advantage logic.

Option C: Under Free Trade, the aggregate production of bread is 11
- Producing only 11 breads in total would require both countries to largely abandon bread production, which contradicts the clear productivity numbers (Germany can produce 8 breads per worker, Spain 2 per worker). Achieving only 11 breads total would waste huge portions of their labor, contradicting the standard free-trade specialization model given these data.

Option D: Under Free Trade, the aggregate production of bread is 200
- This would imply some mixed allocation, but to justify 200 total breads, we’d need a nonstandard split of labor between the two countries that doesn’t cleanly reflect the observed productivity advantages. It’s not the straightforward specialization outcome when one country has a clear comparative advantage.

Option E: Under Free Trade, the aggregate production of bread is 4900
- Similar to option A, 4900 breads far exceed the combined production capacity calculated from the table (760 total possible breads if all labor is devoted to bread). This makes the figure clearly impossible.

Synthesis and conclusion about the correct reasoning path:
- The key is to compare opportunity costs to determine comparative advantage. Germany produces 8 breads or 80 cider per worker (depending on which good is produced). Spain produces 2 breads or 25 cider per worker. The opportunity cost of 1 bread in Germany is 80 cider / 8 bread = 10 cider per bread. For Spain, it is 25 cider / 2 bread = 12.5 cider per bread. Since Germany has the lower opportunity cost for bread, Germany has the comparative advantage in bread, while Spain has the comparative advantage in cider.
- Under free trade, each country specializes in the good for which it has a comparative advantage. Germany should specialize in bread (all its 50 workers producing bread: 50 × 8 = 400 bread). Spain should specialize in cider (all its 180 workers producing cider: 180 × 25 = 4500 cider). 
- Therefore, the aggregate bread production under free trade is 400 units, coming entirely from Germany’s specialization in bread.

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