Autos and chemicals are in million of units in the following production possibilities tables: Refer to the tables above. 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

Autos and chemicals are in million of units in the following production possibilities tables:  Refer to the tables above. 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's opportunity cost for producing 1 unit of auto is 2 units of chemicals, which is higher than the opportunity cost of United States (1.5 units of chemicals). Therefore, Germany has a comparative advantage in producing chemicals, and United States has a comparative advantage in producing autos. By specializing in producing chemicals and trading with the United States, Germany can obtain 3 units of chemicals in exchange for 1 unit of auto. If Germany were to produce only chemicals, it could produce a maximum of 24 million units of chemicals. By trading 1/3 of these chemicals for autos (8 million units), Germany can obtain a maximum combination of 8 million units of autos and 36 million units of chemicals. Therefore, the correct answer is C) 36 million units of chemicals.

Autos and Chemicals Are in Million of Units in the Following