📚 Learning Guide
Comparative Advantage Analysis
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In the context of international trade, a country has a __________ in producing a good if it can produce that good at a lower opportunity cost than another country.

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Learning Path

Question & Answer
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Choose the Best Answer

A

comparative advantage

B

absolute advantage

C

trade surplus

D

market equilibrium

Understanding the Answer

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Answer

In international trade, a country has a comparative advantage in producing a good when it can make that good at a lower opportunity cost compared to another country. Opportunity cost is what you give up to produce something else. For example, if Country A can produce 10 cars or 5 bikes, but Country B can produce 6 cars or 3 bikes, Country A has a lower opportunity cost for making cars because it gives up fewer bikes than Country B does. This means that Country A should focus on making cars, while Country B might focus on making bikes, leading to more efficient trade between them. By specializing in what they do best, both countries can end up with more goods than if they tried to produce everything on their own.

Detailed Explanation

A country has a comparative advantage when it gives up less to make something. Other options are incorrect because Some might think absolute advantage means being the best at making something; A trade surplus means selling more than buying in trade.

Key Concepts

Comparative Advantage
Opportunity Cost
International Trade
Topic

Comparative Advantage Analysis

Difficulty

medium level question

Cognitive Level

understand

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