1. The basis of trade Suppose that Germany and Portugal both produce cheese and wine. Germany's opportunity cost of producing a bottle of wine is 2 pounds of cheese. That is, Germany forgoes the production of 2 pounds of cheese when it produces a bottle of wine. Portugal's opportunity cost of producing a bottle of wine is 1/2 pound of cheese. a comparative advantage in the production of wine. a comparative advantage in the production of cheese.
1. The basis of trade Suppose that Germany and Portugal both produce cheese and wine. Germany's opportunity cost of producing a bottle of wine is 2 pounds of cheese. That is, Germany forgoes the production of 2 pounds of cheese when it produces a bottle of wine. Portugal's opportunity cost of producing a bottle of wine is 1/2 pound of cheese. a comparative advantage in the production of wine. a comparative advantage in the production of cheese.
Chapter1: Making Economics Decisions
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Transcribed Image Text:1. The basis of trade
Suppose that Germany and Portugal both produce cheese and wine. Germany's opportunity cost of producing a bottle of wine is 2 pounds of cheese.
That is, Germany forgoes the production of 2 pounds of cheese when it produces a bottle of wine. Portugal's opportunity cost of producing a bottle of
wine is 1/2 pound of cheese.
a comparative advantage in the production of wine.
a comparative advantage in the production of cheese.
Expert Solution
Step 1: Define comparative advantage
Opportunity cost is the next best alternative.
Opportunity cost shows the forgone units of one good in acquiring the other good.
Opportunity cost is used to calculate the comparative advantage.
The country should specialize in the goods in which it has comparative advantage.
The comparative advantage is when the country has the low opportunity cost of production.
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