Difficulty: Hard

Average Score: 47%

Italy has comparative advantage in wine, Greece in olives. We may conclude:

Rationale

Slopes of PPCs cannot be identical.

The Production Possibility Curves (PPCs) for Italy and Greece reflect their respective comparative advantages in wine and olives. Since each country specializes in a good where they have a comparative advantage, the slopes of their PPCs must differ to represent the opportunity costs of producing each good.

A (Greek olive workers are more productive) YOUR ANSWER

Productivity of workers does not necessarily relate to comparative advantage. Even if Greek olive workers are less productive, Greece may still have a lower opportunity cost for producing olives compared to Italy. Therefore, productivity alone does not determine comparative advantage.

B (Greece devotes more resources to olives) YOUR ANSWER

While Greece may allocate resources towards olive production, this statement does not imply a conclusion about comparative advantage. A country can focus on a product without having a comparative advantage in that area; comparative advantage is determined by opportunity costs, not just resource allocation.

C (Italian winemakers are more productive) YOUR ANSWER

This statement may or may not be true and does not directly relate to the concept of comparative advantage. Italian winemakers could be more productive, but that does not negate Greece's comparative advantage in olives. Productivity levels do not dictate comparative advantage but rather the opportunity cost associated with producing different goods.

D (Slopes of PPCs cannot be identical) CORRECT

The slopes of the PPCs represent the trade-offs between the two goods produced by each country. If Italy has a comparative advantage in wine and Greece in olives, their PPCs must have different slopes to indicate varying opportunity costs, reinforcing that they cannot be identical.

Conclusion

Comparative advantage is rooted in differing opportunity costs, which is illustrated through the slopes of the Production Possibility Curves. Since Italy and Greece specialize in different goods, the PPCs representing their production capabilities cannot have the same slopes. This fundamental difference in their production trade-offs confirms the uniqueness of their comparative advantages in wine and olives, respectively.

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