Which concept explains why a country should specialize in producing the good for which it has the lowest opportunity cost?

Which concept explains why a country should specialize in producing the good for which it has the lowest opportunity cost?

• A. Absolute Advantage
• B. Law of Supply
• C. Comparative Advantage
• D. Elasticity

Answer: (C)

Comparative advantage explains why a country should specialize in producing the good for which it has the lowest opportunity cost. Opportunity cost is what you give up of one good to produce another. If a country sacrifices less of other goods to produce a unit of this good than its trading partner does, it has the lower opportunity cost for that good. By focusing on that good and trading for the rest, both countries can end up with more of both goods than if each tried to produce everything themselves. Absolute advantage is about who can produce more with given resources, which isn’t enough by itself to determine specialization; the Law of Supply and Elasticity describe price responses, not cross-country production decisions.

Comparative advantage explains why a country should specialize in producing the good for which it has the lowest opportunity cost. Opportunity cost is what you give up of one good to produce another. If a country sacrifices less of other goods to produce a unit of this good than its trading partner does, it has the lower opportunity cost for that good. By focusing on that good and trading for the rest, both countries can end up with more of both goods than if each tried to produce everything themselves. Absolute advantage is about who can produce more with given resources, which isn’t enough by itself to determine specialization; the Law of Supply and Elasticity describe price responses, not cross-country production decisions.