Country Specific Advantage Question 2

Country Specific Advantage Question 2 - Country Specific...

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Country Specific Advantage Questions 2 (with answers to part I) The following table represents the hypothetical productivity of Germany and Poland in the automobile business: Engines/day Interiors/day Daily Wage German Workers 10 7 100 EUR Polish Workers 8 6 300 PLN All other components and final assembly are outsourced to other countries (and can be completed instantly from the perspective of the firm). Each car requires one engine and one interior. 1. Which of the following statements is true a. Germany and Poland both have absolute advantages in engines b. Germany has an absolute advantage in the production of engines but not interiors c. Germany has an absolute advantage in the production of engines and interiors d. Poland is at a comparative disadvantage in engines and interiors Explanation: German workers can build more engines and more interiors per day that Polish ones (maybe because the Germans have more robots to help them). 2. The opportunity cost of making engines in Poland is a. 4/3 b. 3/4 c. 5/4 d. 4/5 Explanation: The opportunity cost of making engines in Poland should be thought of as how many interiors will I forgo if I produce another engine. If I move a whole worker from interiors I lose 6, but I gain 8 engines. Thus, a single engine costs me 6/8 or ¾ of an interior. 3. Which of the following is true (from the information in the table) a. Poland has an absolute advantage in making interiors b. Poland has a competitive advantage in interior making c. Poland has a competitive advantage in engine making d. Poland has a comparative advantage in making interiors
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This note was uploaded on 07/19/2011 for the course UGBA 178 taught by Professor Staff during the Summer '08 term at Berkeley.

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Country Specific Advantage Question 2 - Country Specific...

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