What is the meaning of comparative advantage?

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Question: What is the meaning of comparative advantage?

Option 1: 'The ability to produce something at a lower average cost' — This describes lower average costs, which is more closely related to absolute cost efficiency or economies of scale, not the core idea of comparative advantage. It disregards what is forgone in alternative uses, which is essential to comparative analysis.

Option 2: 'The ability to produce something at a lower opportunity cost' — This exactly captures the essence of comparative advantage: a country or producer can produce a good at a lower opportunity cost than others, meaning it sacrifices less of alternative goods to produce that good. This hinges on the concept of trade-offs and what is foregone when choosing one production path over another.

Option 3: 'The ability to produce in larger quantities than others can' — Producing more units than others speaks to absolute productivity or absolute advantage, not comparative advantage. It emphasizes volume rather than the relative trade-off between goods.

Option 4: 'The ability to produce the biggest range of goods compared to others' — This describes breadth of production or variety, not the specific concept of comparing opportunity costs across goods. Comparative advantage focuses on efficiency in production relative to alternatives, not on the number of goods produced or diversity alone.

In summary, option 2 aligns with the standard definition of comparative advantage by emphasizing lower opportunity costs, while the other options point to different notions (average cost focus, absolute quantity, or production breadth) that do not define comparative advantage.

BECO011 Week 10 Extra Practice Question

What is the meaning of comparative advantage?

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