📚 Learning Guide
Production Advantage
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Which concept explains why a country might choose to produce a good in which it has a lower opportunity cost, rather than one in which it has an absolute advantage?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose 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

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