1 An economy is said to have a comparative advantage in the

1. An economy is said to have a comparative advantage in the production of one good if it:

can produce more of all goods than another economy.

can produce less of all goods than another economy.

has the lowest opportunity cost for producing a particular good.

has the highest opportunity cost for producing a particular good.

Solution

The theory of comparative advantage states that if countries specialise in producing goods where they have a lower opportunity cost – then there will be an increase in economic welfare.

So an economy is said to have a comparative advantage in the production of one good if it has the lowest opportunity cost for producing a particular good.