Suppose the United states production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German wage doubles,but U.S.wages do not change at all.We now know that
A) the United States has no comparative advantage.
B) Germany has a comparative advantage in butter.
C) the United States has a comparative advantage in butter.
D) Not enough information is given.
E) Germany gains a comparative advantage in widgets.

Question

Quizplus · Accepted Answer

Germany has a comparative advantage in butter because its production possibility frontier is flatter to the butter axis, meaning it can produce more butter with the same resources compared to the United States. When Germany's wage doubles, it becomes more expensive for Germany to produce widgets, making butter relatively cheaper to produce. This reinforces Germany's comparative advantage in butter.

Suppose the United States Production Possibility Frontier Was Flatter to the Widget