Opportunity Cost & Comparative Advantage in 30 Seconds

With the same amount of resources, Italy can produce 50 units of perfume or 2 units of shoes, while France can produce 50 units of perfume or 5 units of shoes. Which country has the comparative advantage in perfume?



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Opportunity cost of perfume is calculated via quantity shoes / quantity perfume.

If Italy can produce 50 units of perfume and 2 units of shoes with the same resources, then the OC of perfume is 2/50 = 0.04 units of shoes (per unit of perfume).

Which country has the comparative advantage in perfume is just whichever country has the lowest opportunity cost of perfume.

The OC of producing one unit of perfume in Italy is 0.04 unit of shoes and in France is 0.1 unit of shoes. Therefore, Italy has the comparative advantage in perfume.