Suppose that opportunity costs are constant in both France and Germany. In France, maximum feasible hourly production levels are either 3 units of wheat or 5 units of wine. In Germany, maximum feasible hourly production levels are either 4 units of wheat or 10 units of wine. It is correct to state that
A) Germany has an comparative advantage in producing both wheat and wine.
B) Germany has a comparative advantage in producing wine.
C) France has a comparative advantage in producing both wheat and wine.
D) France has a comparative advantage in producing wine.

Question

Quizplus · Accepted Answer

To determine comparative advantage, we compare opportunity costs between two countries. The opportunity cost of producing one unit of wheat in France is 5/3 units of wine (giving up 5 units of wine to produce 3 units of wheat). The opportunity cost of producing one unit of wheat in Germany is 10/4 or 5/2 units of wine. Therefore, France has a lower opportunity cost of producing wheat compared to Germany. Similarly, the opportunity cost of producing one unit of wine in France is 3/5 or 0.6 units of wheat, while in Germany it is 4/10 or 0.4 units of wheat. Germany has a lower opportunity cost of producing wine compared to France. Consequently, Germany has a comparative advantage in producing wine.

Suppose That Opportunity Costs Are Constant in Both France and Germany