Suppose that Spain is currently producing 90 units of wine and 10 units of cheese, but to produce 10 more units of cheese it must sacrifice 30 units of wine. Further, suppose that Portugal produces 45 units of wine and 45 units of cheese, but to produce 10 more units of cheese it must sacrifice only 10 units of wine. It can be concluded that

Question

Quizplus · Accepted Answer

To determine comparative advantage, we need to look at the opportunity cost of producing each good. In Spain, producing 10 more units of cheese would require sacrificing 30 units of wine, which means the opportunity cost of producing cheese is 3 units of wine per unit of cheese. In Portugal, producing 10 more units of cheese would require sacrificing only 10 units of wine, which means the opportunity cost of producing cheese is 1 unit of wine per unit of cheese. Therefore, Portugal has a lower opportunity cost for cheese production and a comparative advantage in cheese. Similarly, Spain's opportunity cost for wine production is lower than Portugal's, meaning Spain has a comparative advantage in wine production.

Suppose That Spain Is Currently Producing 90 Units of Wine