Assume the following information shows the output of 2 goods in 2 countries before specialization.  [Also assume that the same amount of resources are used by both countries and are equally divided between their two industries, 1 and 3.]   Automobiles Computers U.S. 20 15 Germany 15 5 Which country has the absolute advantage in automobile production?  Why? In Germany, the opportunity cost of producing 1 automobile is the loss of _________. Which country has the comparative advantage in automobile production?  Why? If both countries produce according to the respective comparative advantages, what goods will the U.S. and Germany end up producing after specialization? Gains from Trade:  How many more units of total output (automobiles + computers) will be produced after specialization? Terms of Trade:  If the U.S. and Germany trade with each other, and the U.S. sends Germany 10 computers, at least how many autos will the U.S. expect in return?  Be specific. Draw the PPF for both the U.S. and Germany given the information above.  Check your answer to question “f” by showing that the new A/C combination is outside each country’s PPF.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Assume the following information shows the output of 2 goods in 2 countries before specialization.  [Also assume that the same amount of resources are used by both countries and are equally divided between their two industries, 1 and 3.]

  Automobiles Computers
U.S. 20 15
Germany 15

5

  1. Which country has the absolute advantage in automobile production?  Why?
  2. In Germany, the opportunity cost of producing 1 automobile is the loss of _________.
  3. Which country has the comparative advantage in automobile production?  Why?
  4. If both countries produce according to the respective comparative advantages, what goods will the U.S. and Germany end up producing after specialization?
  5. Gains from Trade:  How many more units of total output (automobiles + computers) will be produced after specialization?
  6. Terms of Trade:  If the U.S. and Germany trade with each other, and the U.S. sends Germany 10 computers, at least how many autos will the U.S. expect in return?  Be specific.
  7. Draw the PPF for both the U.S. and Germany given the information above.  Check your answer to question “f” by showing that the new A/C combination is outside each country’s PPF.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 5 images

Blurred answer
Knowledge Booster
Economies of Scale
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education