Question

Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.

Short answer

The term 'lower opportunity cost' means that individual has to forgo or give up very little in the way of resources in order to take advantage of an opportunity.

Step-by-step solution

Step 1. Introduction

The ability to produce a product at a relatively lower cost or to produce a higher quantity at the same cost is known as absolute advantage. While, the ability to produce at a realtively lower opportunity cost is known as competitive advantage.

Step 2. France has lowest opportunity cost of producing wine.

Here, France can make 1 sweater with 1 worker .

Whereas, Tunisia can make 1 sweater with 2 workers.

Thus, 1 worker is equivalent to 2 workers.

1 worker= 2 workers

1/1 worker= 2/1 workers( divided by 1 both side)

To produce one additional sweater, France required 1 worker, whereas Tunisia required 2 workers.

In the same way, France can produce 1 bottle of wine with 1 workers. Whereas, Tunisia can produce one bottle of wine with 3 workers.