A Bottle of Wine Can Be Produced in France with 2

question 4

Multiple Choice

A bottle of wine can be produced in France with 2 labor hours, and in the United States with 4 labor hours. A pound of beef can be produced in France with 1 labor hour, and in the United States with ½ labor hours. Which of the following is true in this context?

• A)France has a comparative advantage in the production of beef.
• B)France has an absolute advantage in the production of beef.
• C)The United States has an absolute, but not a comparative advantage in the production of beef.
• D)The United States has both comparative and absolute advantage in the production of beef.

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Definitions:

Economic Policy

Strategies and decisions by a government or organization aimed at achieving specific economic aims, such as controlling inflation, reducing unemployment, or promoting growth.

Capital Goods

Assets used by businesses to produce goods and services, such as machinery, buildings, and equipment.

Investment

Expenditures that increase the volume of physical capital (roads, factories, wireless networks) and intangible ideas (formulas, processes, algorithms) that help to produce goods and services. Also known as economic investment. Not to be confused with financial investment.

Marginal Analysis

The comparison of marginal (“extra” or “additional”) benefits and marginal costs, usually for decision making.