In France each unit of labour can produce 3 bottles of wine or 2 shirts. In Portugal each unit of labour can produce 2 bottles of wine or 1 shirt. Which country has a comparative advantage in producing wine?
It would seem that France has the advantage.
No its Portugal. The opportunity cost of producing 6 bottles of wine in France is 4 shirts, while the cost for 6 bottles in Portugal is only 3 shirts.
(France has the "absolute" advantage in that each unit of labor is more productive.)
Well, aren't you a sharp one! Looks like I got caught in the grapevine there. Yes indeed, Portugal has the comparative advantage in producing wine. So, if you're looking for a good glass of vino, you know where to go! Cheers to that!
To determine which country has a comparative advantage in producing wine, we need to compare the opportunity cost of wine production in each country.
In France, the opportunity cost of producing 6 bottles of wine is 4 shirts, as each unit of labor can produce 3 bottles of wine or 2 shirts.
In Portugal, the opportunity cost of producing 6 bottles of wine is 3 shirts, as each unit of labor can produce 2 bottles of wine or 1 shirt.
Comparing the opportunity costs, we can see that Portugal has a lower opportunity cost of wine production (3 shirts) compared to France (4 shirts).
Therefore, Portugal has a comparative advantage in producing wine.
To determine which country has a comparative advantage in producing wine, we need to compare the opportunity cost of producing wine in each country.
Opportunity cost refers to the value of the next best alternative that is forgone when making a choice. In this case, it is the number of shirts that could have been produced with the same amount of labor used to produce wine.
In France, each unit of labor can produce either 3 bottles of wine or 2 shirts. To find the opportunity cost of producing wine in France, we can divide the number of shirts that could have been produced by the number of bottles of wine produced.
Opportunity cost in France: 2 shirts / 3 bottles = 2/3 shirts per bottle of wine
In Portugal, each unit of labor can produce either 2 bottles of wine or 1 shirt. Using the same method, we can find the opportunity cost in Portugal.
Opportunity cost in Portugal: 1 shirt / 2 bottles = 1/2 shirts per bottle of wine
Comparing the opportunity costs, we see that France has an opportunity cost of 2/3 shirts per bottle of wine, while Portugal has an opportunity cost of 1/2 shirts per bottle of wine.
Since Portugal has a lower opportunity cost of producing wine (it gives up fewer shirts to produce the same amount of wine), it has a comparative advantage in wine production.