Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Italy has comparative advantage in:
A) both goods, while Belgium has comparative advantage in neither good.
B) linen, while Belgium has comparative advantage in pasta.
C) pasta, while Belgium has comparative advantage in linen.
D) neither good, while Belgium has comparative advantage in both goods.

Question

Reference: Ref 2-7 (Table: Production Possibilities for Italy and Belgium) According to the table on Production Possibilities for Italy and Belgium, Italy has comparative advantage in:
A) both goods, while Belgium has comparative advantage in neither good. 
B) linen, while Belgium has comparative advantage in pasta. 
C) pasta, while Belgium has comparative advantage in linen. 
D) neither good, while Belgium has comparative advantage in both goods.

Quizplus · Accepted Answer

Comparative advantage is determined by the opportunity cost of producing one good in terms of the other. In this case, Italy can produce 4 units of pasta or 3 units of linen while Belgium can produce 3 units of pasta or 6 units of linen. Italy's opportunity cost of producing 1 unit of pasta is 3/4 units of linen, while Belgium's opportunity cost of producing 1 unit of pasta is 2 units of linen. Italy's opportunity cost of producing 1 unit of linen is 4/3 units of pasta, while Belgium's opportunity cost of producing 1 unit of linen is 1/2 units of pasta. Since Italy has a lower opportunity cost of producing pasta, it has a comparative advantage in pasta, while Belgium has a comparative advantage in linen.