Comparative advantage emerges because of the presence of
A) trade.
B) differing opportunity costs.
C) marginal benefits that equal marginal costs.
D) scarcity.
E) incentives.

Question

Quizplus · Accepted Answer

Comparative advantage arises when one entity or individual has a lower opportunity cost in producing a good or service than another. This is because resources are scarce and individuals or entities must allocate their resources in the most efficient way possible. Trade occurs when parties with comparative advantages in producing different goods and services decide to specialize and trade with each other for mutual benefit. Thus, comparative advantage is essential for trade to occur. However, the presence of scarcity, marginal benefits equaling marginal costs, and incentives are not necessarily related to comparative advantage.

Comparative Advantage Emerges Because of the Presence of