Question

For each bottle of wine that Italy produces, it gives up the opportunity to make 10 pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it produces. Which of the following is true about the comparative advantage between the two countries?

Italy has the comparative advantage in cheese.
France has the comparative advantage in wine.
France has the comparative advantage in wine and cheese.
Italy has the comparative advantage in wine.

Answer 1

The correct answer is: Italy has the comparative advantage in wine.

Step-by-step explanation:

Comparative advantage can be defined as the ability to produce at a lower opportunity cost.

Here, we see that the opportunity cost of making a bottle of wine for Italy is 10 pounds of cheese.

While the opportunity cost of producing one bottle of wine for France is 25 pounds of cheese.

This implies that Italy has a lower opportunity cost for producing a bottle of wine. So we can say that it has a comparative advantage in producing wine.