Question

At one time, most of the watches produced in Germany were sold in Germany. Today, however, Germany both exports and imports watches. How could comparative advantage explain these data? Select the correct answer below: It cannot; comparative advantage predicts that a country either exports a product or imports it, not both. The pattern is not due to comparative advantage but to government restrictions on production. Germany has a comparative disadvantage in watches. Germany specializes in the production of high-end watches, which it exports, and imports low-end watches that can be produced at lower cost elsewhere.

Answer 1

Answer: Option (d) is correct.

Step-by-step explanation:

According to the comparative advantage, a nation has a comparative advantage in a production of certain good if the opportunity cost of producing that good is lower than the other country.

Here, Germany both exports and imports watches. This is because of the difference in the opportunity cost of producing two kind of watches that are High-end and low-end watches. So, it is possible that Germany has lower opportunity cost of producing high-end watches than the other countries, therefore, it exports high-end watches. Hence, it has a comparative advantage in producing high-end watches.

Alternatively, it is possible that Germany has higher opportunity cost of producing lower-end watches than the other countries, therefore, it imports low-end watches.