The law of comparative advantage says that a person should produce a good if he or she: a. has an absolute advantage in a related activity. b. has the lowest opportunity cost of producing that good. c. is equally good at producing this good as someone else is. d. has the greatest desire to consume that good. e. has a comparative advantage in a related activity.

Question

Business

Makena Myers

31 August, 16:26

The law of comparative advantage says that a person should produce a good if he or she: a. has an absolute advantage in a related activity. b. has the lowest opportunity cost of producing that good. c. is equally good at producing this good as someone else is. d. has the greatest desire to consume that good. e. has a comparative advantage in a related activity.

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Answers (1)

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Benjamin Cohen · Answer 1

Option (b) is correct.

Explanation:

According to the law of comparative advantage, a person or a country has a comparative advantage in producing a commodity if the opportunity cost of producing that good as compared to the other commodity is lower than the other country.

For example:

There are two countries; Country A and Country B. There are two goods to be produced; Computer and bottles.

Suppose the opportunity cost of producing a computer in Country A is 4 bottles and the opportunity cost of producing a computer in Country B is 6 bottles.

Therefore, the Country A has a comparative advantage in producing computers because of the lower opportunity cost of producing it.