Suppose the United States' production possibility frontier was flatter to the widget axis,whereas Germany's was flatter to the butter axis.We now learn that the German mark sharply depreciates against the U.S.dollar.We now know that
A) the United States has no comparative advantage
B) Germany has a comparative advantage in butter.
C) the United States has a comparative advantage in butter.
D) Germany has a comparative advantage in widgets.
E) Germany has lost its comparative advantage.

Question

Quizplus · Accepted Answer

Germany's production possibility frontier being flatter to the butter axis indicates it has a comparative advantage in butter. The depreciation of the German mark does not change this inherent comparative advantage.

Suppose the United States' Production Possibility Frontier Was Flatter to the Widget