Individuals A and B both produce good X. A has a comparative advantage in the production of good X if A
A) can produce X using newer technology than can B.
B) has a lower opportunity cost of producing good X than has B.
C) has a lower opportunity cost of producing good X than of producing good Y.
D) can produce more units of X in a given time period than can B.

Question

Quizplus · Accepted Answer

Comparative advantage is based on opportunity cost, which is the cost of producing one good in terms of producing another. If A has a lower opportunity cost of producing good X than B, then A has a comparative advantage in the production of good X. This means that A gives up less of the production of another good when producing good X compared to B. Therefore, A can produce both goods more efficiently than B, making trade mutually beneficial.

Individuals a and B Both Produce Good X