Question

11. Which statement illustrates the law of comparative advantage?

A country makes the goods it produces most efficiently and trades for others.
A country exports all its raw materials and imports all manufactured products.
A country makes all the goods it needs.
A country buys all its goods from other nations.

Answer 1

A country makes the goods it produces most efficiently and trades for others.

Answer 2

The correct answer is: "A country makes the goods it produces most efficiently and trades for others".

Countries or companies specialize on producing goods or services where they have acquired a competitive advantage.

A comparative advantage is defined as the superiority that a producer enjoys and which enables him to manufacture a certain product at a lower cost, or with a higher quality, if compared to its competitors. Therefore, this country becomes the most efficient producer which is able to elaborate the product with the lowest opportunity cost.