Multiple Choice
What can a producer gain by specializing according to the concept of comparative advantage?
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2. Introductory Economic Models
PPF - Comparative Advantage and Absolute Advantage
Multiple Choice
Which of the following statements best describes comparative advantage in the context of the production possibilities frontier (PPF)?
A
A country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good compared to another country.
B
A country has a comparative advantage in producing a good if it uses more resources to produce that good than another country.
C
A country has a comparative advantage in producing a good if it faces higher opportunity costs for that good compared to other countries.
D
A country has a comparative advantage in producing a good if it can produce more of that good than any other country.
Verified step by step guidance1
Understand the concept of comparative advantage: It refers to the ability of a country to produce a good at a lower opportunity cost than another country, not necessarily producing more of the good or using more resources.
Recall the definition of opportunity cost in the context of the PPF: Opportunity cost is what you give up to produce one more unit of a good, often measured as the amount of another good that must be forgone.
Analyze the statements by comparing them to the definition of comparative advantage: The correct statement should emphasize lower opportunity cost rather than absolute production or resource usage.
Identify that the statement 'A country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good compared to another country' aligns perfectly with the economic definition of comparative advantage.
Conclude that the other statements are incorrect because they confuse comparative advantage with absolute advantage or misinterpret opportunity costs.
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