Which statement identifies comparative advantage?

Which statement identifies comparative advantage?

• A. A statement that describes absolute advantage.
• B. The law of demand.
• C. A statement about the quantity supplied.
• D. The statement describing comparative advantage.

Answer: (D)

The main idea tested is how trade can occur because of differences in opportunity costs between producers. Comparative advantage means you produce a good at a lower opportunity cost than your trading partner, not just because you’re more productive overall. The statement describing comparative advantage is the best answer because it directly refers to this idea of relative efficiency and opportunity cost, which is what allows two parties to benefit from specializing and trading. Think of it this way: one country might be able to produce both goods more efficiently (absolute advantage), but the other country might sacrifice less of one good to produce the other, giving it the lower opportunity cost for that good. That country has the comparative advantage in producing that good, and both countries can gain from trade by specializing accordingly. The other options don’t identify the idea of comparative advantage: describing absolute advantage focuses on overall productivity, the law of demand deals with how price affects quantity demanded, and something about the quantity supplied relates to supply, not comparative advantage.

The main idea tested is how trade can occur because of differences in opportunity costs between producers. Comparative advantage means you produce a good at a lower opportunity cost than your trading partner, not just because you’re more productive overall. The statement describing comparative advantage is the best answer because it directly refers to this idea of relative efficiency and opportunity cost, which is what allows two parties to benefit from specializing and trading.

Think of it this way: one country might be able to produce both goods more efficiently (absolute advantage), but the other country might sacrifice less of one good to produce the other, giving it the lower opportunity cost for that good. That country has the comparative advantage in producing that good, and both countries can gain from trade by specializing accordingly.

The other options don’t identify the idea of comparative advantage: describing absolute advantage focuses on overall productivity, the law of demand deals with how price affects quantity demanded, and something about the quantity supplied relates to supply, not comparative advantage.