Which concept describes producing a good at a lower opportunity cost than another producer?

• A. Absolute Advantage
• B. Comparative Advantage
• C. Demand
• D. Supply

Answer: (B)

Comparative advantage is about producing a good at a lower opportunity cost than another producer. Opportunity cost is what you give up of other goods to make something. If one producer can produce a unit of a good while sacrificing only a small amount of another good, whereas another producer would have to sacrifice more of that other good, the first producer has the comparative advantage in that good. Specializing where your opportunity costs are lowest and then trading lets both producers end up with more of both goods than if each tried to produce everything itself. This distinction also helps explain gains from trade even when one producer could be more productive in absolute terms for all goods. Demand and supply describe how price and quantity move in markets, not the relative costs of production between producers, so they aren’t the concept here.