$$\begin{array}{l}
{ ~~~~~~~~~~~~~~~~~~\text { Germany Production Possibilities } } \
{ ~~~~~~~~~~~~~~~~~~~~~~~~~~\text { (Production Alternatives) } } \
\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Product } & A & B & C & D & E & F \
\hline \text { Autos } & 0 & 4 & 8 & 12 & 16 & 20 \
\hline \text { Chemicals } & 40 & 32 & 24 & 16 & 8 & 0 \
\hline
\end{array}\\
{ ~~~~~~~~~~~~~~~~~~~~~~~\text { U.S. Production Possibilities } } \
{ ~~~~~~~~~~~~~~~~~~~~~~~~~~\text { (Production Alternatives) } } \
\begin{array} { | l | c | c | c | c | c | c | }
\hline \text { Product } & A & B & C & D & E & F \
\hline \text { Autos } & 0 & 3 & 6 & 9 & 12 & 15 \
\hline \text { Chemicals } & 60 & 48 & 36 & 24 & 12 & 0 \
\hline
\end{array}
\end{array}$$ 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

Question

$$\begin{array}{l}
{ ~~~~~~~~~~~~~~~~~~\text { Germany Production Possibilities } } \
{ ~~~~~~~~~~~~~~~~~~~~~~~~~~\text { (Production Alternatives) } } \
\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Product } & A & B & C & D & E & F \
\hline \text { Autos } & 0 & 4 & 8 & 12 & 16 & 20 \
\hline \text { Chemicals } & 40 & 32 & 24 & 16 & 8 & 0 \
\hline
\end{array}\\
{ ~~~~~~~~~~~~~~~~~~~~~~~\text { U.S. Production Possibilities } } \
{ ~~~~~~~~~~~~~~~~~~~~~~~~~~\text { (Production Alternatives) } } \
\begin{array} { | l | c | c | c | c | c | c | } 
\hline \text { Product } & A & B & C & D & E & F \
\hline \text { Autos } & 0 & 3 & 6 & 9 & 12 & 15 \
\hline \text { Chemicals } & 60 & 48 & 36 & 24 & 12 & 0 \
\hline
\end{array}
\end{array}$$ 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

Quizplus · Accepted Answer

Germany has a comparative advantage in producing autos because it gives up fewer chemicals per auto as it moves along its production possibilities curve. If Germany specializes in autos and trades them at a rate of 3 units of chemicals for 1 unit of autos, it can trade 8 million units of autos for 24 million units of chemicals (8 autos * 3 chemicals/auto = 24 chemicals). Adding this to the 12 million units of chemicals it can produce (from the point where it produces 8 million autos), Germany could obtain and consume a maximum combination of 8 million units of autos and 36 million units of chemicals.

Refer to the Accompanying Production Possibilities Tables