Question

The central idea behind comparative advantage is that a nation should:

A) Compare its market economy with other nations.
B) Specialize in the product that it can produce with the lowest opportunity cost.
C) Use money as a medium of exchange to facilitate specialization and trade.
D) Pursue investment in capital goods as a means of stimulating economic growth.

Answer 1

Comparative advantage suggests nations should specialize in producing goods with the lowest opportunity cost to maximize gains from international trade. The correct option is B.

Step-by-step explanation:

The central idea behind comparative advantage is that a nation should specialize in the production of goods and services that it can produce with the lowest opportunity cost.

This is based on the theory of comparative advantage, which suggests that the gains from international trade are maximized when each country specializes according to its comparative advantage and then trades with others.

To determine comparative advantage, countries must calculate both absolute and comparative advantages.

Unlike absolute advantage, which occurs when a country can produce a good using fewer resources compared to other countries, comparative advantage is when a country can produce a good at a lower opportunity cost relative to other goods.

Therefore, the answer to the student's question is: B) Specialize in the product that it can produce with the lowest opportunity cost.