Question

If the price of buying a car starts rising in the United States, consumers may need to look no further than the dollar's recent slide against major foreign currencies. On the other hand, economically depressed Midwestern farmers may find it easier to sell surplus grain overseas if a weak dollar makes it cheaper for foreigners to buy U.S. Goods. The dollar spent much of last week on the skids, flirting with its lowest level of the year against the Japanese yen...It also has lost ground to the euro. - from "A Weak Dollar," by Michael Wittmann If the higher price of buying a car is due to comparative advantage rather than foreign exchange rates, which is MOST LIKELY true? A) The opportunity cost of the automobile industry has risen. B) The production rates of the automobile industry have risen. C) The comparable worth of the automobile industry has stabilized. D) The unemployment rates in the automobile industry have decreased.

Answer 1

The correct answer is "A)".

Since the value of the dollar has fallen, this means that car producers probably have to spend more money on purchasing raw material and parts from overseas suppliers. As a consequence, in order to keep their same level of profitability, they need to raise the price of the end product, in this case, cars.

This overall scenario makes the automotive not as attractive for investing. This means that the benefits an investor will be missing out if he or she chooses to invest in the car industry over others, in other words, the opportunity cost, have risen.

Answer 2

Answer:

A

Explanation:

Comparative advantage is one country's ability to produce products at a lower opportunity cost. If the opportunity cost of the automobile industry has risen, it may result in a higher price for buying a car.