when a country has a comparative advantage in the production of a good, it means

Question

when a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner, then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers PPFs) for candor ia and Lamponia. Both countries produce potatoes and coffee each initially Le before specialization and trade producing 18 million pounds of potatoes and 9 million pounds of coffee, as indicated by the grey stars marked with the letter A. 1 OF 2 O Type here to search

Explanation / Answer

Ans:

For spain the opportunity cost of producing 1 bottle of wine is 4 barrels of oil

For Germany the opportunity cost of producing 1 bottle of wine is 8 barrels of oil

since the opportunity cost is lower for spain, spain has comparative advantage in producing wine and germany has comparative advantage in producing oil

Fill in the blanks

1) Spain

2) Germany

3) 4 barrels of oil

4) 0.125 bottle of wine

Following will apply

7 barrels of oil per bottle of wine

5 barrels of oil per bottle of wine

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