Difficulty: Medium

Average Score: 74%

Which statement is true when Country A has a comparative advantage in the production of coffee compared to Country B?

Rationale

Country A can produce coffee at a lower opportunity cost than Country B.

Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country. This principle emphasizes that it is beneficial for countries to specialize in the production of goods where they hold this advantage, leading to more efficient allocation of resources and increased total production.

A (Country A has an absolute advantage in the production of coffee) YOUR ANSWER

Absolute advantage refers to the ability of a country to produce more of a good with the same amount of resources compared to another country. While Country A may have a comparative advantage in coffee production, it does not necessarily mean it has an absolute advantage, as it could produce less coffee overall than Country B.

B (Country A can produce coffee at a lower opportunity cost than Country B) CORRECT

This statement accurately reflects the definition of comparative advantage. If Country A has a comparative advantage in coffee production, it means that it sacrifices fewer alternative goods to produce coffee compared to Country B, thus making this statement true.

C (Country B has an absolute advantage in the production of coffee) YOUR ANSWER

This statement is incorrect in the context of comparative advantage. Just because Country A has a comparative advantage does not imply anything about Country B's absolute advantage; it could very well produce less coffee than Country A, negating this claim.

D (Country B cannot produce coffee) YOUR ANSWER

This statement is false as it suggests that Country B is entirely incapable of producing coffee, which contradicts the concept of comparative advantage. Comparative advantage simply indicates that Country A is more efficient in producing coffee relative to Country B, but does not imply that Country B has no capacity to produce it.

Conclusion

Understanding comparative advantage is crucial in international trade, as it allows countries to specialize in the production of goods where they have a lower opportunity cost. In this scenario, Country A's ability to produce coffee at a lower opportunity cost than Country B enables both countries to benefit from trade, maximizing overall efficiency and resource utilization.

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