The basis of trade
Suppose that Italy and Spain both produce cheese and wine. Italy's opportunity cost of producing a bottle of wine is 2 pounds of cheese. That is, Italy forgoes the production of 2 pounds of cheese when it produces a bottle of wine. Spain's opportunity cost of producing a bottle of wine is 4 pounds of cheese.
a comparative advantage in the production of wine.
a comparative advantage in the production of cheese.

Question

05-10-2020
Business

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The basis of trade
Suppose that Italy and Spain both produce cheese and wine. Italy's opportunity cost of producing a bottle of wine is 2 pounds of cheese. That is, Italy forgoes the production of 2 pounds of cheese when it produces a bottle of wine. Spain's opportunity cost of producing a bottle of wine is 4 pounds of cheese.
a comparative advantage in the production of wine.
a comparative advantage in the production of cheese.

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topeadeniran2 topeadeniran2 · Answer 1 · 2020-10-05T15:46:32+02:00

Answer:

• Italy has a comparative advantage in the production of wine.

• Spain has a comparative advantage in the production of cheese.

Explanation:

Comparative advantage is when a particular economy has a lower opportunity cost when it produces goods and seevices than its trading partners.

For Italy, the country forgoes the production of 2 pounds of cheese when it produces a bottle of wine while Spain forgoes 4 pounds of cheese.

The above statement simply means that Italy has a comparative advantage in the production of wine and Spain has a comparative advantage in the production of cheese.