Which statement correctly defines comparative advantage?

Which statement correctly defines comparative advantage?

• A. Having the lowest production costs in all goods.
• B. Producing goods with the lowest opportunity cost relative to other goods.
• C. Having an absolute advantage in some commodities.
• D. Always exporting according to government planning.

Answer: (B)

Comparative advantage is about producing goods based on relative, not absolute, costs. A country has a comparative advantage in a good if its opportunity cost of making that good is lower than in other countries. This means it sacrifices less of other goods to produce it, making trade beneficial for both sides. The correct statement captures this idea by pointing to producing with the lowest opportunity cost relative to other goods. The idea isn’t about having the lowest production costs in every good, nor is it about having an absolute edge in some commodities, and it isn’t about government-planned exports.

Comparative advantage is about producing goods based on relative, not absolute, costs. A country has a comparative advantage in a good if its opportunity cost of making that good is lower than in other countries. This means it sacrifices less of other goods to produce it, making trade beneficial for both sides. The correct statement captures this idea by pointing to producing with the lowest opportunity cost relative to other goods. The idea isn’t about having the lowest production costs in every good, nor is it about having an absolute edge in some commodities, and it isn’t about government-planned exports.