Question

Suppose that the average worker in Umbria can produce 5 kilos of beans or 3 bottles of wine. In Lazio, the average worker can produce 4 kilos of beans or 2 bottles of wine, What is the cost of a bottle of wine in Umbria and in Lazio?

Answer 1

The cost of a bottle of wine in Umbria is 5/3 kilos of beans, while in Lazio it is 2 kilos of beans. France has the absolute advantage in producing both sweaters and wine when compared to Tunisia.

Step-by-step explanation:

The cost of production for a bottle of wine can be determined based on the opportunity cost, which is what must be given up to produce one additional unit of a good. In Umbria, the opportunity cost of producing one bottle of wine is equivalent to the beans that could have been produced with the same labor. The cost of a bottle of wine in Umbria is therefore 5/3 kilos of beans. In Lazio, the cost of one bottle of wine is the 4 kilos of beans that could have been produced instead, making the cost 4/2 or 2 kilos of beans per one bottle of wine.

Regarding the provided information in the example with France and Tunisia.

• France has the absolute advantage in producing sweaters because it only takes one worker to produce one sweater, whereas in Tunisia, it takes two workers.
• Similarly, for wine, France also has the absolute advantage since it can produce a bottle of wine with just one worker while Tunisia requires three workers for the same.

The concept of absolute advantage can be determined by comparing the productive efficiency of two countries; it is the ability of one entity to produce more of a good or service with a certain amount of resources than another entity can.