Who has the comparative advantage in the following scenario?
Suppose that Sweden and Greece both produce oil and cheese.. Sweden's oppurunity cost of producing a kg of cheese is 8 barrels of oil, while greece's oppurtunity cost of producing a kg of cheese is 3 barrels of oil.
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In this scenario, each country has a comparative advantage in one product. Sweden has the comparative advantage in producing oil while Greece has the comparative advantage in producing cheese.
A country has the comparative advantage when it can produce something at a lower opportunity cost than another country. In this scenario, we are clearly told that Greece has a lower opportunity cost for making cheese. Its opportunity cost for a kilogram of cheese is only 3 barrels of oil compared to Sweden's cost of 8. When turned around, this tells us that Sweden has a comparative advantage in producing oil. Sweden only gives up 1/8kg of cheese to produce a barrel of oil while Greece gives up 1/3kg.
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