Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Absolute Advantage
B
Comparative Advantage
C
Opportunity Cost
D
Production Possibilities
Understanding the Answer
Let's break down why this is correct
Answer
The concept is comparative advantage, which says a country should specialize in the good for which it has the lowest opportunity cost, even if it is not the best at producing that good. This means that the country gives up less of the other good when it shifts resources to produce the first good. By focusing on the product with the lowest relative cost, the country can trade for the other good at a cheaper price than competitors. For example, if Country A can make 10 cars or 5 computers and Country B can make 4 cars or 8 computers, A has a lower opportunity cost for cars and B for computers, so each should specialize in what they give up least. This specialization lets both countries end up with more goods than if they tried to produce everything on their own.
Detailed Explanation
Comparative advantage shows that a country should make the good it can produce most cheaply in terms of what it gives up. Other options are incorrect because Absolute advantage is the ability to produce more of a good than another country, but it does not decide where to specialize; Opportunity cost is the amount of another good a country gives up to produce one more unit.
Key Concepts
Comparative Advantage
Absolute Advantage
Opportunity Cost
Topic
Production Advantage
Difficulty
medium level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1Arrange the following concepts in the correct order to demonstrate how a country can leverage its production advantages for economic growth: A) Specialization in goods with comparative advantage B) Understanding opportunity costs C) Increased trade with other countries D) Efficient resource allocation
hardEconomics
Practice
2
Question 2Which of the following statements accurately describe the concepts of Absolute and Comparative Advantage in production? Select all that apply.
easyEconomics
Practice
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