How do countries know when they have a comparative advantage in the production of a good?
A) Government accountants collect cost data from countries and analyze it to find out which country has a comparative advantage in the production of which good.
B) They know as the result of individuals trying to earn profits and buying low and selling high in the process.
C) The United Nations Economic Conference Group analyzes cost data from countries and determines which country has a comparative advantage in the production of which good.
D) There is not one major way that countries acquire this information.

Question

Quizplus · Accepted Answer

Countries know they have a comparative advantage in the production of a good when individual producers within the country are able to sell that good at a lower cost than other countries. The process of individuals trying to earn profits and buying low and selling high in the process creates an invisible hand that directs resources towards their most efficient use. This leads to countries specializing in the production of goods in which they have a comparative advantage, and trading with other countries for goods in which they do not have a comparative advantage.

How Do Countries Know When They Have a Comparative Advantage