Question

Suppose that Spain and Austria both produce rye and stained glass. Spain's opportunity cost of producing a pane of stained glass is 5 bushels of rye while Austria's opportunity cost of producing a pane of stained glass is 10 bushels of rye.By comparing the opportunity cost of producing stained glass in the two countries, you can tell that _____ as a comparative advantage in the production of stained glass and _____ has a comparative advantage in the production of fish.

Answer 1

Answer:

Spain for the first part and Austria for the second part.

Explanation:

The solution to the question is to determine which of the countries have a comparative advantage in producing stained glass among the two countries.

Comparative advantage represents the ability of an economy or country to produce a good or render a service at opportunity costs lower than other countries or fellow trade partners. Ability to produce at lower opportunity costs simply means that country or economy will produce the good at a lower cost and realise stronger margins in terms of sales and profit.

Spain's opportunity cost of producing a pane of stained glass is 5 bushels of rye

While Austria's opportunity cost of producing the same pane of stained glass is 10 bushels of rye.

Therefore, Spain has a lower opportunity cost and has comparative advantage over Austria in producing stained glass.

Also, Austria has a comparative advantage over Spain in the production of rye.