CFA Level I · CFA Level I Exam · International Trade
A country has a comparative advantage in producing a good when, compared with its trading partners, it most likely:
A country has a comparative advantage in a good when it can produce it at the lowest opportunity cost relative to trading partners. Absolute advantage concerns lower input use per unit, and total output reflects size, so neither of those defines comparative advantage.
- Ahas the lowest opportunity cost of producing the goodCorrect
- Buses the fewest labor hours to produce the good
- Chas the largest total output of the good
Explanation
Comparative advantage is defined by the lowest opportunity cost of producing a good. Using the fewest labor hours describes absolute advantage, and a country can have an absolute advantage in every good yet a comparative advantage in only some. Total output depends on country size, not relative efficiency.
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