Question

If a country has the "comparative advantage" in producing a good or service, that means the country...
A. Has the lowest opportunity cost for producing the good or service
B. Has the cheapest labor
C. Has the most natural resources
D. Has the "strongest" currency in the foreign exchange market

Answer 1

A. Has the lowest opportunity cost for producing the good or service.

Explanation: Comparative advantage is about who gives up the least to produce a good (lowest opportunity cost), not absolute cost, wages, resource endowments, or currency strength. A country can have comparative advantage even if it isn’t the cheapest producer or richest in resources.