Question

Suppose that Greece and Sweden both produce oil and stained glass. Greece's opportunity cost of producing a pane of stained glass is 4 barrels of oil while Sweden's opportunity cost of producing a pane of stained glass is 8 barrels of oil.
By comparing the opportunity cost of producing stained glass in the two countries, you can tell that _____ has a comparative advantage in the production of stained glass and _____ has a comparative advantage in the production of oil.

Answer 1

Answer: Greece; Sweden

Explanation:

A country or a firm has a comparative advantage in producing a commodity if the opportunity cost of producing that commodity in terms of other commodity is lower in that country or firm as compared to the other country or firm.  

Greece's opportunity cost of producing a pane of stained glass = 4 barrels of oil

Sweden's opportunity cost of producing a pane of stained glass = 8 barrels of oil

Therefore, opportunity cost of producing a pane of stained glass is lower in Greece as compared to the Sweden.

Hence, Greece has a comparative advantage in producing stained glass.

Greece's opportunity cost of producing a barrel of oil = $\frac{1}{4}$

                                                                                          = 0.25 pane of stained glass

Sweden's opportunity cost of producing a barrel of oil = $\frac{1}{8}$

                                                                                          = 0.125 pane of Stained glass

Therefore, opportunity cost of producing a barrel of oil is lower in Sweden as compared to the Greece.

Hence, Sweden has a comparative advantage in producing Oil.