📚 Learning Guide
Comparative Advantage Analysis
hard

In a scenario where Country A can produce 10 units of cloth or 5 units of wine, and Country B can produce 6 units of cloth or 6 units of wine, which country has a comparative advantage in wine production?

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Learning Path

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Choose the Best Answer

A

Country A

B

Country B

C

Neither country has a comparative advantage

D

Both countries have the same opportunity cost in producing wine

Understanding the Answer

Let's break down why this is correct

Answer

To determine which country has a comparative advantage in wine production, we need to look at the opportunity costs of producing wine in each country. Country A can produce either 10 units of cloth or 5 units of wine, meaning for every unit of wine, it gives up 2 units of cloth. On the other hand, Country B can produce 6 units of cloth or 6 units of wine, so for each unit of wine, it only gives up 1 unit of cloth. Since Country B sacrifices fewer cloth units to produce wine, it has a comparative advantage in wine production. Therefore, Country B should specialize in making wine, while Country A focuses on cloth.

Detailed Explanation

Country B has a lower opportunity cost for making wine. Other options are incorrect because Some might think Country A is better because it makes more wine; This option suggests both countries are equal in wine production.

Key Concepts

Comparative Advantage
Opportunity Cost
International Trade
Topic

Comparative Advantage Analysis

Difficulty

hard level question

Cognitive Level

understand

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