Comparative advantage, not absolute advantage, determines the decision to specialise in production.

Question

Quizplus · Accepted Answer

Comparative advantage is the ability to produce a good or service at a lower opportunity cost than another producer. It is the most important factor in determining which goods and services a country or individual should specialize in producing. Absolute advantage, which is the ability to produce more of a good or service than another producer with the same amount of resources, is not as important in determining specialization decisions as comparative advantage.

Comparative Advantage, Not Absolute Advantage, Determines the Decision to Specialise