What does comparative advantage mean in international trade?

What does comparative advantage mean in international trade?

• A. The ability to produce a good at a higher opportunity cost than others.
• B. The ability to produce a good at a higher opportunity cost than others in certain contexts.
• C. The ability to produce a good at a lower opportunity cost than others, guiding specialization.
• D. The advantage of producing goods domestically only.

Answer: (C)

Comparative advantage means producing a good at a lower opportunity cost than other countries, which leads to specialization. In other words, a country can produce one good by giving up less of other goods to make it, compared with its trading partners. Because of these relative cost differences, each country should focus on the goods where its opportunity costs are lowest and then trade to get the rest, expanding total output and consumption for both sides.

That’s why the best choice states that a country can produce a good at a lower opportunity cost than others, guiding specialization. The others miss the idea: producing at a higher opportunity cost isn’t advantageous; contextual or absolute notions aren’t what comparative advantage relies on; and producing only domestically ignores the gain from trade that comes from relative efficiency.