Because of differences in opportunity costs, individuals and businesses:

• A. prefer to avoid specialization to minimize risk
• B. tend to specialize in the production of goods and services for which they have a comparative advantage
• C. face no trade-offs when making production decisions
• D. always produce all goods and services they consume themselves

Answer: (B)

Verified step by step guidance

1. Understand the concept of opportunity cost, which is the value of the next best alternative foregone when making a choice.
2. Recognize that comparative advantage occurs when an individual or business can produce a good or service at a lower opportunity cost than others.
3. Analyze how differences in opportunity costs lead to specialization, where individuals or businesses focus on producing goods or services for which they have a comparative advantage.
4. Explain that specialization allows for more efficient production and can increase overall output and gains from trade.
5. Conclude that because of these differences in opportunity costs, individuals and businesses tend to specialize rather than avoid specialization or produce everything themselves.