Question

An economy that has the lowest opportunity cost for producing a particular good is said to have a(n): A. absolute advantage. B. comparative advantage. C. production possibilities curve. D. increasing opportunity cost. E. free-trade zone.

Answer 1

Answer:

B. comparative advantage

Explanation:

A country has comparative advantage in production if it produces at a lower opportunity cost when compared to other countries.

For example, country A produces 20 kg of beans and 5kg of rice. Country B produces 5kg of beans and 20kg of rice.  

for country A,  

opportunity cost of producing beans = 5/20 = 0.25

opportunity cost of producing rice = 20/5 = 4

for country B,  

opportunity cost of producing rice = 5/20 = 0.25

opportunity cost of producing beans = 20/5 = 4

Country A has a comparative advantage in the production of beans and country B has a comparative advantage in the production of rice