Question

Suppose that Italy and Sweden both produce rye and cheese. Italy's opportunity cost of producing a pound of cheese is 5 bushels of rye while Sweden's opportunity cost of producing a pound of cheese is 10 bushels of rye. By comparing the opportunity cost of producing cheese in the two countries, you can tell that

Answer 1

Answer:

Italy has a comparative advantage in the production of cheese

Explanation:

Suppose that Italy and Sweden both produce rye and cheese.

Italy's opportunity cost of producing a pound of cheese is 5 bushels of rye while Sweden's opportunity cost of producing a pound of cheese is 10 bushels of rye.

By comparing the opportunity cost of producing cheese in the two countries, you can tell that Italy has a comparative advantage in the production of cheese because it has a lower opportunity cost (as a matter of fact half the cost) in comparison with Sweden.

Comparative advantage is an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than that of trade partners