N/A — Exam

Question 34 • Personal Finance and Economics

Which situation is an example of comparative advantage in an international market?

Answer

Country A can produce 100 units of rice per acre of farmland, while Country B can only produce 70 units of rice per acre of farmland using the same resources.

Country A invests in a new technology while Country B chooses to invest in education.

Country A decides to grow extra potatoes so they have more to export, while Country B does not grow potatoes to export.

Factories in Country A and Country B produce the same number of tablet computers. Country A’s factories could be used instead to build more laptops than the factories in Country B.

Explanation

Comparative advantage means being able to produce a good at a lower opportunity cost than another producer. In choice A, the factories in Country A could produce more laptops instead of tablets than Country B’s factories could, indicating that Country A gives up more tablet production to make laptops and therefore has a comparative advantage in tablets. Choice B describes producing more with the same resources, which is an absolute advantage, not comparative advantage.

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