In Spain each bottle of wine requires 8 hours of labor in its production and eac
ID: 1148275 • Letter: I
Question
In Spain each bottle of wine requires 8 hours of labor in its production and each yard of cloth requires 4 hours. In Portugal 2 hours of labor can produce either one bottle of wine or 1 yard of cloth. Which of the following statements is correct?
Spain has an absolute advantage in cloth and Portugal has an absolute advantage in wine.
Spain has a comparative advantage in wine and Portugal has a comparative advantage in cloth.
The pre-trade price ratios indicate that Portugal will export wine.
The pre-trade price ratio in Spain is 1 yard of cloth: 2 bottles of wine.
None of the above.
Spain has an absolute advantage in cloth and Portugal has an absolute advantage in wine.
Spain has a comparative advantage in wine and Portugal has a comparative advantage in cloth.
The pre-trade price ratios indicate that Portugal will export wine.
The pre-trade price ratio in Spain is 1 yard of cloth: 2 bottles of wine.
None of the above.
Explanation / Answer
Answer:-
Spain has a comparative advantage in wine and Portugal has a comparative advantage in cloth.
This statement is correct
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