The US Can Produce Pizza for $7

question 25

Multiple Choice

The U.S. can produce pizza for $7.50 each and barrels of beer for $37.50 each, and Germany can produce pizza for €5 each and barrels of beer for €15 each (€ is the symbol for the euro, the currency Germany uses) . If the exchange rate is 1.50 $/€ then

• A)the U.S. has a comparative advantage in the production of beer.
• B)neither country has a comparative advantage in the production of beer.
• C)the U.S. has a comparative advantage in the production of pizza.
• D)the U.S. has a comparative advantage in the production of beer and pizza.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, usually with fixed dividends.

Cost of Retained Earnings

The opportunity cost for shareholders for having the company retain the earnings instead of distributing them, often considered in investment and dividend decisions.

Risk Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, often represented by the yield on government bonds.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than one indicates higher than market volatility.