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Who has the comparative advantage in the following scenario?Suppose that Sweden and...
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.
Posted by pohnpei397 on September 19, 2012 at 12:04 AM (Answer #1)
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