📚 Learning Guide
Comparative and Absolute Advantage
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Which of the following statements best explains how comparative advantage impacts trade decisions and economic benefits?

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Choose the Best Answer

A

Countries should produce goods where they have an absolute advantage only.

B

Comparative advantage leads to lower opportunity costs, maximizing economic benefits in trade.

C

Trade decisions are based solely on the availability of resources, not on comparative advantage.

D

Absolute advantage determines the most beneficial trade routes between countries.

Understanding the Answer

Let's break down why this is correct

Answer

Comparative advantage is the idea that countries or individuals should specialize in producing goods or services they can make most efficiently, even if they can produce other things too. This specialization allows them to trade with others who have different strengths, leading to more efficient production and greater overall wealth. For example, if Country A is better at making cars and Country B is better at growing wheat, Country A should focus on cars while Country B focuses on wheat. When they trade, both countries can end up with more cars and more wheat than if they tried to make everything on their own. This way, comparative advantage helps improve trade decisions and boosts economic benefits for everyone involved.

Detailed Explanation

Comparative advantage means a country can produce something at a lower opportunity cost. Other options are incorrect because This idea suggests only focusing on absolute advantage, which is about being the best at something; This statement overlooks how comparative advantage helps in making smart trade choices.

Key Concepts

trade decisions
economic benefits
Topic

Comparative and Absolute Advantage

Difficulty

medium level question

Cognitive Level

understand

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