Suppose that in Germany, the opportunity cost of producing a gallon of beer is 5 gallons of wine. In Italy, the opportunity cost of producing a gallon of beer is 3 gallons of wine
a. What is the opportunity cost of producing a gallon of wine for Germany?
b. What is the opportunity cost of producing a gallon of wine for Italy?
c. Which country has a comparative advantage in the production of beer?
d. Which country has a comparative advantage in the production of wine?
a. For Germany, the opportunity cost of producing a gallon of wine is 1/5 of a gallon of beer.
b. For Italy, the opportunity cost of producing a gallon of wine is 1/3 of a gallon of beer.
c. Germany has a comparative advantage in the production of wine.
d. Italy has a comparative advantage in the production of beer.
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The real balances effect occurs because a higher price level will reduce the real value of people's:
a. financial assets. b. wages. c. unpaid debt. d. physical investments.
Demand and supply can also be used to explain how economic events will cause ___________ in prices, wages, and rates of return.
a. changes b. freezes c. barriers d. locking