Figure 18-7

-In Figure 18-7, AB represents the production possibilities of Pestoland and CD that of Pastaland.Pestoland has a comparative advantage in pasta because it

Question

Figure 18-7
 
-In Figure 18-7, AB represents the production possibilities of Pestoland and CD that of Pastaland.Pestoland has a comparative advantage in pasta because it

Quizplus · Accepted Answer

According to the principle of comparative advantage, a country should specialize in producing and exporting the good in which it has a lower opportunity cost, which means the good that it gives up less of when producing another good. In the graph, we can see that Pestoland has a steeper slope (or opportunity cost) for producing pesto compared to Pastaland. This means that Pestoland gives up less pasta when producing more pesto than Pastaland. Therefore, Pestoland has a comparative advantage in producing pesto. Conversely, Pastaland has a flatter slope (or opportunity cost) for producing pasta, meaning it gives up less pesto when producing more pasta. Therefore, Pastaland has a comparative advantage in producing pasta. Hence, Option B is correct because Pestoland gets more pesto from a given decrease in pasta production.

Figure 18-7 -In Figure 18-7, AB Represents the Production Possibilities of Pestoland