📚 Learning Guide
Comparative Advantage Analysis
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A country, A, can produce 10 units of wine or 5 units of cheese with the same resources, while country B can produce 6 units of wine or 2 units of cheese. Based on the concept of comparative advantage, which category should each country fall into regarding production specialization?

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Choose the Best Answer

A

Country A should specialize in wine, Country B in cheese

B

Both countries should produce wine

C

Country A should specialize in cheese, Country B in wine

D

Both countries should equally produce both goods

Understanding the Answer

Let's break down why this is correct

Answer

Comparative advantage means that a country should specialize in producing the goods it can make most efficiently compared to other goods. In this case, country A can produce 10 units of wine or 5 units of cheese, which means it gives up 2 units of wine for each unit of cheese produced. On the other hand, country B can produce 6 units of wine or 2 units of cheese, giving up 3 units of wine for each unit of cheese. Since country A has a lower opportunity cost for cheese, it should specialize in cheese, while country B has a lower opportunity cost for wine and should specialize in wine. This way, both countries can trade and benefit from each other's strengths.

Detailed Explanation

Country A can make more wine with its resources than cheese. Other options are incorrect because This idea suggests both countries can make wine equally well; This option assumes Country A is better at cheese, but it's not.

Key Concepts

Comparative Advantage
Opportunity Cost
International Trade
Topic

Comparative Advantage Analysis

Difficulty

medium level question

Cognitive Level

understand

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