Which of the following best describes comparative advantage in the context of the production possibilities frontier (PPF)?

• A. The ability of a country to produce more of a good than another country using the same resources.
• B. The ability of a country to produce a good at a lower opportunity cost than another country.
• C. The ability of a country to consume beyond its PPF without trade.
• D. The ability of a country to produce all goods more efficiently than another country.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of the Production Possibilities Frontier (PPF). The PPF represents the maximum combinations of two goods that a country can produce using all its resources efficiently.
2. Step 2: Define comparative advantage. Comparative advantage occurs when a country can produce a good at a lower opportunity cost compared to another country, meaning it sacrifices less of one good to produce more of another.
3. Step 3: Differentiate comparative advantage from absolute advantage. Absolute advantage refers to the ability to produce more of a good with the same resources, while comparative advantage focuses on lower opportunity cost, not necessarily higher output.
4. Step 4: Relate comparative advantage to the PPF. On the PPF, the slope represents the opportunity cost of producing one good in terms of the other. A country has a comparative advantage in producing the good for which it has a flatter slope (lower opportunity cost).
5. Step 5: Conclude that the best description of comparative advantage is the ability to produce a good at a lower opportunity cost than another country, which enables beneficial trade and specialization.