Which of the following best defines comparative advantage?
A) A static relationship between nations, wherein both produce similar types of goods
B) A static relationship between nations, wherein one produces more of a good than another
C) A dynamic relationship between nations, wherein one produces more of all types of goods than another
D) A dynamic relationship between nations, wherein one produces a product with lower opportunity cost than the other

Question

Quizplus · Accepted Answer

Comparative advantage is the ability of a country or producer to produce a good or service at a lower opportunity cost than another country or producer. In other words, it is the ability to produce a good with a lower cost of sacrificed alternatives. This concept is dynamic because it can change over time as countries develop new resources or technologies. Option A is incorrect because it does not define the concept of comparative advantage correctly. Option B is incorrect because it suggests a static relationship where one country produces more of a good than another. However, this may not be the case, as one country may have a comparative advantage in producing a different good. Option C is incorrect because it suggests a scenario where one country produces more of all types of goods than another, which is not necessarily true. The concept of comparative advantage explains why countries specialize in certain goods or services to achieve maximum efficiency and benefit from trade.

Which of the Following Best Defines Comparative Advantage