Home Grades Personalized Reviews Discussion Course Materials

Home Grades Personalized Reviews Discussion Course Materials uiz 7 raded Assignment | Back to Assignment Due Monday 01.29.18 at 01:45 AM 7. Question 7 Refer to Exhibit 34-6. Which of the following is true? Exhibit 34 6 Country A Country Cheese Country A has a comparative advantage in both cheese and wine. Country B has a comparative advantage in both cheese and wane. O A. B. O C. Country A has a comparative advantage in cheese, and country B has a comparative advantage in wine. O D. Country B has a comparative advantage in cheese, and country A has a comparative advantage in wine Continue wichout saving Notices Terms of Use Privacy Notice Security Notice Accessibility

Solution

From the diagram we see that country A can produce 10 units of wine or 20 units of cheese so the opportunity cost of 1 unit of wine is 2 units of cheese. The same is 1 unit of cheese in country B. Hence country B has comparative advantage (lower opportunity cost) in Wine production and country A has a comparative advantage in cheese production. Option C is correct.