Assume that the United States could produce 80 million loaves of bread if all its resources were devoted to bread production. If the United States used all its resources to produce milk, suppose it could produce 80 million gallons of milk. If Germany used all its resources to produce bread, suppose it could produce 40 million loaves of bread. Alternatively, if all its resources were used to produce milk, Germany could produce 20 million gallons of milk. Which statement is true?

Question

Quizplus · Accepted Answer

The United States has an absolute advantage in producing both goods because it can produce more of both bread and milk than Germany can with all its resources. Comparative advantage involves producing at a lower opportunity cost, not necessarily more of a good.

Assume That the United States Could Produce 80 Million Loaves