Question

If the opportunity cost of manufacturing tractors is higher in the United States than in Germany, and the opportunity cost of manufacturing trains is lower in the United States than in Germany, then the United States will:

a. export both trains and tractors to Germany.
b. import both trains and tractors from Germany.
c. export trains to Germany and import tractors from Germany.
d. import trains from Germany and export tractors to Germany.

Answer 1

The United States will export trains to Germany and import tractors from Germany, based on the comparative advantage each country holds in producing these goods.

Step-by-step explanation:

If the opportunity cost of manufacturing tractors is higher in the United States than in Germany, and the opportunity cost of manufacturing trains is lower in the United States than in Germany, then according to the principle of comparative advantage, the United States will export trains to Germany and import tractors from Germany. This is because each country should specialize in the production and export of goods for which it has a lower opportunity cost compared to other countries.

In this scenario, the United States has a comparative advantage in producing trains, so it will export trains to Germany. Conversely, since the opportunity cost of producing tractors is lower in Germany, Germany has a comparative advantage in producing tractors and will therefore export them to the United States. This trade allows both countries to benefit from specialization and trade based on their respective comparative advantages.