Question

The law of comparative advantage says that a person should produce a good if he or she: a. ​has an absolute advantage in a related activity. b. ​has the lowest opportunity cost of producing that good. c. ​is equally good at producing this good as someone else is. d. ​has the greatest desire to consume that good. e. ​has a comparative advantage in a related activity.

Answer 1

Answer:

Option (b) is correct.

Explanation:

According to the law of comparative advantage, a person or a country has a comparative advantage in producing a commodity if the opportunity cost of producing that good as compared to the other commodity is lower than the other country.

For example:

There are two countries; Country A and Country B. There are two goods to be produced; Computer and bottles.

Suppose the opportunity cost of producing a computer in Country A is 4 bottles and the opportunity cost of producing a computer in Country B is 6 bottles.

Therefore, the Country A has a comparative advantage in producing computers because of the lower opportunity cost of producing it.