Answered: Refer to the accompanying production…

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter18: International Trade And Finance

Section: Chapter Questions

Problem 1SQP

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Question

	Germany Production Possibilities
	(Production Alternatives)
Product	A	B	C	D	E	F
Autos	0	4	8	12	16	20
Chemicals	40	32	24	16	8	0

	U.S. Production Possibilities
	(Production Alternatives)
Product	A	B	C	D	E	F
Autos	0	3	6	9	12	15
Chemicals	60	48	36	24	12	0

Refer to the accompanying production possibilities tables. Data are in millions of units. Suppose that each nation specialized in producing the product for which it has a comparative advantage and the terms of trade were set at 3 units of chemicals for 1 unit of autos. In this case, Germany could obtain and consume a maximum combination of 8 million units of autos and

Multiple Choice

12 million units of chemicals.
24 million units of chemicals.
36 million units of chemicals.
48 million units of chemicals.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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