Suppose that Spain and Germany both produce beer and cheese. Spain's opportunity cost of producing a pound of cheese is 3 barrels of beer while Germany's opportunity cost of producing a pound of cheese is 11 barrels of beer.
By comparing the opportunity cost of producing cheese in the two countries, you can tell that ____ has a comparative advantage in the production of cheese and ______ has a comparative advantage in the production of beer.
By comparing the opportunity cost of producing cheese in the two countries, you can tell that Spain has a comparative advantage in the production of cheese and Germany has a comparative advantage in the production of beer.
Explanation:
To produce a pound of cheese, Spain gives up to the production of 3 barrels of beer, while to produce the same amount of cheese, Germany gives up to the production of 11 barrels of beer. Then, it is relatively cheaper to Spain to produce cheese, compared to Germany, because for every pound of cheese produced, Spain gives up to fewer barrels of beer. Then, Spain has a comparative advantage in the production of cheese.
On the other hand, Germany can produce 11 barrels of beer, by giving up to 1 pound of cheese, while Spain can only produce 3 barrels of beer by giving up to one pound of cheese. Germany is more efficient producing beer, because it is relatively cheaper for German compared to Spain, producing and additional barrel of beer in terms of the cheese they do not produce when they produce more beer. Germany has a comparative advantage in the production of beer.
