Which situation is an example of comparative advantage in an international market?

• A. Country A can produce wine at a lower opportunity cost than Country B, while Country B can produce cheese at a lower opportunity cost than Country A.
• B. Country A produces more wine and cheese than Country B using the same resources.
• C. Country A and Country B both specialize in producing the same good.
• D. Country A has more natural resources than Country B.

Answer: (A)

Verified step by step guidance

1. Understand the concept of comparative advantage: it occurs when a country can produce a good at a lower opportunity cost compared to another country, meaning it sacrifices less of other goods to produce it.
2. Identify the opportunity costs for each country in producing different goods. For example, calculate how much cheese Country A gives up to produce one unit of wine, and vice versa.
3. Compare the opportunity costs between the two countries for each good. The country with the lower opportunity cost in producing a good has the comparative advantage in that good.
4. Recognize that comparative advantage leads to specialization: each country should specialize in producing the good for which it has the comparative advantage, allowing for more efficient production and beneficial trade.
5. Evaluate the given options by checking which one correctly describes a situation where each country has a lower opportunity cost in producing different goods, illustrating comparative advantage.