Question

what is the difference between absolute advantage and comparative advantage?
○ absolute advantage is the ability to produce a good or a service at a lower production cost than competitors. comparative advantage is the ability to produce a good or service at a lower opportunity cost than competitors.
○ absolute advantage is the ability to produce a good or a service at a lower opportunity cost than competitors. comparative advantage is the ability to produce a good or service at a lower production cost than competitors.
○ absolute advantage is the ability to sell a good or a service at a lower price than competitors. comparative advantage is the ability to sell a good or service at a higher price than competitors.
○ absolute advantage is the ability to sell a good or a service at a higher price than competitors. comparative advantage is the ability to sell a good or service at a lower price than competitors.

Explanation:

To solve this, we recall the definitions of absolute and comparative advantage. Absolute advantage refers to producing a good/service at a lower production cost (e.g., fewer resources, lower monetary cost) than others. Comparative advantage is about producing at a lower opportunity cost (what is given up to produce the good/service) than competitors.

• The second option swaps the definitions, so it's wrong.
• The third and fourth options focus on selling prices, but these concepts relate to production (not selling) costs, so they are incorrect.
• The first option correctly matches the definitions of absolute (lower production cost) and comparative (lower opportunity cost) advantage.

Answer:

A. Absolute advantage is the ability to produce a good or a service at a lower production cost than competitors. Comparative advantage is the ability to produce a good or service at a lower opportunity cost than competitors.