If, in a Two-Commodity, Two-Country Classical World, Sweden Can Make

question 14

Multiple Choice

If, in a two-commodity, two-country Classical world, Sweden can make a unit of furniture with 10 days of labor and a unit of steel with 15 days labor, while Germany can make a unit of furniture with 12 days of labor and a unit of steel with 12 days labor, then

• A) Sweden has an absolute advantage in steel and Germany has an absolute advantage in Furniture.
• B) Sweden has a comparative advantage in steel and Germany has a comparative Advantage in furniture.
• C) the pretrade price ratios indicate that Germany will export steel if trade takes place.
• D) the pretrade price ratio in Sweden is 1 furniture:1.5 steel.

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Definitions:

Price

The monetary value needed to obtain a product, service, or investment.

Quantity Supplied

The amount of a good or service that producers are willing to sell at a given price over a specific period.

Substitute Goods

Goods or services that serve as alternatives to each other, where a rise in the cost of one results in a higher demand for the other.

Complementary Goods

Products or services that are used together, where the increase in demand for one leads to an increase in demand for the other.