CFA Level I · CFA Level I Exam · International Trade
Country X has a comparative advantage in a good when, compared with its trading partner, it:
A country has a comparative advantage in a good when its opportunity cost of producing that good is lower than its trading partner's. Absolute advantage, based on fewer inputs or higher productivity, does not determine trade patterns because one country can hold it in every good.
- Ahas the lower opportunity cost of producing the goodCorrect
- Buses fewer labor hours to produce one unit of the good
- Chas the higher output per worker in producing the good
Explanation
Comparative advantage is defined by lower opportunity cost. Fewer labor hours or higher output per worker describes absolute advantage, which can exist in every good for one country and does not determine the pattern of trade.
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