Final answer:
Comparative advantage is why Japanese cars are popular in the U.S. due to higher quality production at a lower opportunity cost compared to American-made cars. Countries benefit from trade when they specialize in products with a comparative advantage, even if they have an absolute advantage in all goods.
Step-by-step explanation:
An example of comparative advantage is U.S. consumers buying automobiles produced in Japan because Japanese companies have a reputation for producing a higher-quality automobile than those produced in the United States. Comparative advantage occurs when a country can produce a good at a lower opportunity cost than other countries. For instance, if Saudi Arabia can produce oil with fewer labor hours compared to the United States, it has a comparative advantage in oil production. Similarly, if the U.S. can produce corn with fewer resources than Saudi Arabia, it has a comparative advantage in corn production.
Despite one country possibly having an absolute advantage in producing all goods, both countries can benefit from trade if they specialize in goods for which they hold a comparative advantage. The example of the U.S. specializing in refrigerators while importing shoes, even though it's more efficient at producing both compared to another country, illustrates this concept beautifully. This strategy increases global production and consumption levels.