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Consider two countries, Portugal and England, that produce
two goods, wine and cheese, with only one factor of production, Labor. In Portugal, one unit of labor can produce 2 units of wine or 1 unit of cheese. In England, one unit of labor can produce 2 units of wine or 4 of cheese. There are 100 units of labor in Portugal, and 100 in England. Countries share the same tastes, and there is perfect competition.
1. Fill in the following table:
2. Which country has a an absolute advantage in wine? In cheese? Which country has a comparative advantage in wine? In cheese?
Ã‚Â· England has an absolute advantage in cheese
Ã‚Â· Portugal has a comperative advantage in wine
Ã‚Â· England has a comperative advantage in cheese
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