Difficulty: Easy

Average Score: 79%

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.

A comparative advantage indicates that one country can produce a good at a lower opportunity cost than another country. In this case, Country A's ability to produce coffee more efficiently in terms of what it must forgo compared to Country B is the defining factor for its comparative advantage.

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

This statement accurately describes the principle of comparative advantage. It implies that Country A sacrifices less of other goods to produce coffee than Country B, making it more efficient in coffee production relative to other alternatives.

B (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 than another country with the same resources. While Country A may produce more coffee, this does not inherently mean it has a comparative advantage, which is focused on opportunity costs rather than sheer production volume.

C (Country B cannot produce coffee) YOUR ANSWER

This statement is incorrect because it is possible for Country B to produce coffee, even if it does so at a higher opportunity cost than Country A. Comparative advantage does not imply that one country is entirely incapable of producing a product.

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

This statement contradicts the premise of the question. If Country A has a comparative advantage, it does not mean that Country B has an absolute advantage; rather, it indicates that Country A is more efficient in the context of opportunity costs regarding coffee production.

Conclusion

Understanding comparative advantage is crucial in international trade, as it highlights how countries can benefit from specializing in goods they produce more efficiently. In this scenario, Country A's lower opportunity cost in coffee production illustrates its comparative advantage over Country B, while the other statements misinterpret the concepts of absolute versus comparative advantages.

Related Questions

View all