Given two economic systems, A and B, if economy A has a comparative advantage in the production of widgets, then
A) the inputs necessary to produce widgets in economy A cost less than in economy B.
B) economy A must give up less of all other goods to produce widgets than economy B.
C) economy A is less efficient in the production of some goods than economy B.
D) economy A would not benefit from the specialization of production.

Question

Quizplus · Accepted Answer

Comparative advantage means that economy A can produce widgets at a lower opportunity cost (i.e., by giving up less of other goods) than economy B. Therefore, choice B is the correct option. Choice A is incorrect because the cost of inputs is not necessarily lower in economy A. Choice C is incorrect because economy A could be more efficient in the production of all goods, but still have a comparative advantage in widgets due to lower opportunity cost. Choice D is incorrect because specialization and trade based on comparative advantage leads to mutual gains for both economies.

Given Two Economic Systems, a and B, If Economy a Has