A country possesses a comparative advantage in the production of a good if
A) the opportunity cost in terms of forgone output of alternative goods is lower for this country than it is for its trading partners.
B) it is able to produce more of this good per hour than can any other country.
C) it possesses an absolute advantage in the production of this good.
D) all of the above

Question

Quizplus · Accepted Answer

Comparative advantage is based on the concept of opportunity cost. A country has a comparative advantage in producing a good if the opportunity cost (i.e. the cost of producing one good in terms of sacrificing the production of another) is lower for that country compared to its trading partners. Therefore, option A is the correct answer. Option B refers to absolute advantage, which is a different concept from comparative advantage. Option C is incorrect because possessing an absolute advantage does not necessarily imply having a comparative advantage.

A Country Possesses a Comparative Advantage in the Production of a Good