Assume that Germany and China can produce beer and cloth. If the MPL_c/MPL_b for Germany is 2/5 and MPL_c/MPL_b for China is 1, then Germany and China have a comparative advantage in: A) cloth and beer, respectively. B) beer and cloth, respectively. C) beer. D) cloth.

Question

Quizplus · Accepted Answer

Germany has a higher MPL for beer than cloth, indicating that it is relatively more efficient at producing beer compared to cloth. Similarly, China has a higher MPL for cloth than beer, indicating that it is relatively more efficient at producing cloth compared to beer. Therefore, Germany and China have a comparative advantage in beer and cloth respectively, making the best choice B.

Assume That Germany and China Can Produce Beer and Cloth