Question

Look at Exercise 19.2. 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

Both France and Tunisia have a different opportunity cost in different products.

Step-by-step solution

Step 1. Definition

Opportunity cost: it is a cost that is measured in terms of what you give up of some other good.

Step 2. Explanation

The opportunity cost of producing wine is less in France, and the opportunity cost of producing sweaters is less in Tunisia. So, France has a comparative advantage in wine, Tunisia has a comparative advantage in sweaters.

Step 3.

A lower opportunity cost means to do the same task or produce the same good, the cost of giving up the alternative is lower than the others. This puts a person at an advantageous position than the others. They can produce the same goods as others but they dont have to sacrifice as much as others.