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Chapter 9: Problem 5

An article in the New York Times quoted an economist as arguing that "global free trade and the European single market \(\ldots\) encourage countries to specialize in sectors where they enjoy comparative advantage. Germany's [comparative advantage] is in cars and machine tools." For the author's observation to be correct, must Germany be able to produce more cars and machine tools per hour worked than do France, Italy, Spain, and Germany's other trading partners? Briefly explain.

Short Answer

Expert verified
No, Germany doesn't need to produce more cars and machine tools per hour than its trading partners for the author's observation to be correct. It needs to have a comparative advantage, which means it should produce these goods at a lower opportunity cost as compared to its partners.

Step by step solution

01

Understanding the Concept of Comparative Advantage

First thing is to understand the concept of comparative advantage. Comparative advantage refers to a situation where a country, even though may not have absolute advantage, can produce a commodity at a lower opportunity cost. This means, it can produce something most efficiently relative to other goods and compared to other countries.
02

Applying the Concept to Germany's Situation

Now, as for the author's observation about Germany's comparative advantage in cars and machine tools. Germany does not necessarily need to have an absolute advantage i.e., it doesn't need to produce more cars and machine tools per hour than France, Italy, Spain or any of its trading partners.
03

Explanation

For the author's observation to be correct, Germany needs to have a comparative advantage in producing cars and machine tools. This means that Germany needs to produce cars and machine tools at a lower opportunity cost than these countries. It implies that Germany must give up less of other goods to produce cars and machine tools.

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Most popular questions from this chapter

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