According to the theory of comparative advantage;a good should be produced in that nation where
A)the production possibilities line lies further to the right than the trading possibilities line.
B)its cost is least in terms of alternative goods that might otherwise be produced.
C)its absolute cost in terms of real resources used is least.
D)its absolute money cost of production is least.

Question

Quizplus · Accepted Answer

The theory of comparative advantage suggests that a good should be produced in the country where its opportunity cost is the lowest. This means that the country should produce the good in which it has a comparative advantage, i.e. the good where its cost of production is least in terms of alternative goods that might otherwise be produced. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect because they do not fully capture the essence of comparative advantage.

According to the Theory of Comparative Advantage;a Good Should Be