Below is the total market demand and supply of wine for France and Germany.Quantities are in millions of litres per month.

-Refer to the information above to answer this question.Assume that France and Germany enter into a free trade agreement (and there are no extra transportation costs,etc. )what will Germany do?

Question

Below is the total market demand and supply of wine for France and Germany.Quantities are in millions of litres per month.
 
-Refer to the information above to answer this question.Assume that France and Germany enter into a free trade agreement (and there are no extra transportation costs,etc. )what will Germany do?

Quizplus · Accepted Answer

To determine what Germany will do, we need to compare the domestic supply and demand of each country.

Germany's domestic supply is 7 million litres per month, while its domestic demand is 12 million litres per month. This means that Germany has a shortage of 5 million litres per month (12 - 7).

On the other hand, France's domestic supply is 18 million litres per month, while its domestic demand is 15 million litres per month. France has a surplus of 3 million litres per month (18 - 15).

If they enter into a free trade agreement, Germany can import the additional 5 million litres it needs from France. However, France only has 3 million litres to spare, so Germany cannot import 5 million litres from France alone. Therefore, Germany would have to import 4 million litres from France and satisfy the remaining 1 million litres of demand with their own domestic production.

Thus, the correct answer is C) Import 4 million litres of wine per month.

Below Is the Total Market Demand and Supply of Wine