Multiple Choice
Suppose Country A can produce 10 smoothies or 20 sandwiches per day, and Country B can produce 8 smoothies or 16 sandwiches per day. Who has the comparative advantage in selling smoothies?
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2. Introductory Economic Models
PPF - Comparative Advantage and Absolute Advantage
Multiple Choice
When a country has a comparative advantage in the production of a good, which of the following is true?
A
It can produce the good at a lower opportunity cost than other countries.
B
It has the lowest absolute cost of producing the good.
C
It does not benefit from specializing in the production of the good.
D
It can produce more of the good than any other country.
Verified step by step guidance1
Understand the concept of comparative advantage: It refers to a country's ability to produce a good at a lower opportunity cost compared to other countries, not necessarily at the lowest absolute cost.
Recall the definition of opportunity cost: It is what you give up in order to produce one more unit of a good, often measured in terms of other goods forgone.
Compare comparative advantage with absolute advantage: Absolute advantage means producing more of a good with the same resources, while comparative advantage focuses on lower opportunity cost.
Analyze the options given: Identify which statement aligns with the definition of comparative advantage, focusing on opportunity cost rather than absolute production or quantity.
Conclude that the correct statement is the one indicating the country can produce the good at a lower opportunity cost than other countries, which is the essence of comparative advantage.
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