Multiple Choice
Who has the absolute advantage in making fresh squeezed orange juice?
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2. Introductory Economic Models
PPF - Comparative Advantage and Absolute Advantage
Multiple Choice
What can a producer gain by specializing according to the concept of comparative advantage?
A
Lower opportunity costs
B
Absolute advantage in all goods
C
More new customers
D
Higher sales regardless of efficiency
Verified step by step guidance1
Understand the concept of comparative advantage: it refers to the ability of a producer to produce a good at a lower opportunity cost than another producer.
Recognize that specializing according to comparative advantage means focusing on producing goods for which the producer has the lowest opportunity cost, rather than trying to produce everything.
Analyze what happens when a producer specializes: by focusing on goods with lower opportunity costs, the producer can produce more efficiently and trade for other goods, leading to overall gains.
Compare this to absolute advantage, which is about producing more of a good with the same resources, but specialization based on comparative advantage focuses on minimizing opportunity costs, not necessarily producing more of all goods.
Conclude that the main gain from specializing according to comparative advantage is achieving lower opportunity costs, which allows for more efficient production and mutually beneficial trade.
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