42. Now suppose that the numbers are changed again. Wheat U.S 10 60 12 Germany W

Question

42. Now suppose that the numbers are changed again. Wheat U.S 10 60 12 Germany Which of the following statements is true? a) each country should specialize in that product in which it has an absolute advantage comparative advantage does not exist c) b) absolute advantage does not exist each country should specialize in that good in which it has a comparative advantage Consider the two country- two good model presented in class used to illustrate the Ricardian model. This theory implies that if marginal opportunity costs differ across countries 43. trade will be mutually beneficial if each country has an absolute advantage in one product trade will be mutually beneficial if each country specializes in and exports the good in which it has comparative advantage there is no comparative advantage each country should seek to maximize exports and minimize imports a) 6 c) d) 44. Which of the following imposed the Continental System on Britain in the early 19 Century? Frederick the Great a) b) c) Peter the Great Louis XIV Napoleon Hitler tried to strangle Britain economically using: the European Union 45. a) b) ) the European Tariff Zone ) submarine warfare the Edict of Nantes 10

Explanation / Answer

42. The right answer is option D.

Explanation: US's opportunity cost of producing 1 unit of wheat = 60/10 = 6 units of cars

US's opportunity cost of producing 1 car = 10/60 = 0.1666 units of wheat.

Germany's opportunity cost of producing 1 unit of wheat = 12/5 = 2.4 units of cars

Germany's opportunity cost of producing 1 car = 5/12 = 0.4166 units of wheat.

The country that has a lower opportunity cost in the production of something is said to have a comparative advantage in the production of that good. Germany has a comparative advantage in the production of cars and USA has a comparative advantage in the production of wheat. If these countries produce according to their own comparative advantage, both the countries will have higher consumption at a lower cost.

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