Suppose that Italy and Spain both produce cheese and wine. Italy's opportunity cost of producing a bottle of wine is 3 pounds of cheese. That is, Italy forgoes the production of 3 pounds of cheese when it produces a bottle of wine. Spain's opportunity cost of producing a bottle of wine is 4 pounds of cheese. _________ (options: Neither Italy nor Spain has, Italy has, Both Italy and Spain have, Spain has) a comparative advantage in the production of wine.  _________ (options: Neither Italy nor Spain has, Italy has, Both Italy and Spain have, Spain has) a comparative advantage in the production of cheese.

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.