📚 Learning Guide
Absolute and Comparative Advantage
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In the context of international trade, when a country can produce a good at a lower opportunity cost than another country, it is said to have a __________ advantage.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
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4
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Choose the Best Answer

A

Absolute

B

Comparative

C

Relative

D

Competitive

Understanding the Answer

Let's break down why this is correct

Answer

In international trade, when a country can produce a good at a lower opportunity cost than another country, it is said to have a comparative advantage. This means that it sacrifices less of other goods to produce this particular good compared to others. For example, if Country A can produce wine by giving up 2 units of cheese, while Country B has to give up 4 units of cheese to make the same amount of wine, Country A has a comparative advantage in wine production. This concept helps countries specialize in producing goods where they are most efficient, leading to increased overall trade benefits. By focusing on what they do best, countries can trade and enjoy more goods than if they tried to produce everything themselves.

Detailed Explanation

A country has a comparative advantage when it can make something at a lower cost than another country. Other options are incorrect because Some might think absolute advantage means being better at making everything; Relative advantage sounds similar, but it's not a term used in trade.

Key Concepts

Comparative Advantage
Opportunity Cost
Absolute Advantage
Topic

Absolute and Comparative Advantage

Difficulty

medium level question

Cognitive Level

understand

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