Asked by Valerie Lopez on May 06, 2024
Verified
A nation's comparative advantage in the production of an item is determined by
A) which country has already specialized in production of the item.
B) the total and marginal costs of producing the item.
C) the opportunity cost of producing the item relative to a trading partner's opportunity cost of producing the same item.
D) specialization in the production of all goods.
E) the quantity of resources required to produce a unit of the item.
Comparative Advantage
is the economic theory that a country should specialize in producing and exporting goods and services for which it has the lowest opportunity cost.
Opportunity Cost
The cost of forgoing the next best alternative when making a decision.
Marginal Costs
The additional cost incurred when producing one more unit of a particular good or service.
- Understand the importance of opportunity cost in making trade choices.
Verified Answer
CH
Courtney HayesMay 13, 2024
Final Answer :
C
Explanation :
A nation's comparative advantage in the production of an item is based on the opportunity cost of production compared to its trading partner's opportunity cost of producing the same item. Opportunity cost refers to the value of the next best alternative forgone when allocating resources to a particular activity. Nations will specialize in producing the goods and services in which they have a comparative advantage and trade with other nations to increase overall welfare.
Learning Objectives
- Understand the importance of opportunity cost in making trade choices.