The idea behind comparative advantage reflects the possibility that one party:

• A. faces no trade-offs when allocating resources
• B. can produce a good at a lower opportunity cost than another party
• C. can produce more of all goods than another party
• D. has a higher absolute advantage in every activity

Answer: (B)

Verified step by step guidance

1. Understand the concept of comparative advantage: it refers to the ability of a party to produce a good at a lower opportunity cost compared to another party.
2. Recall that opportunity cost is what you give up to produce one more unit of a good, which involves trade-offs in resource allocation.
3. Recognize that comparative advantage does not mean producing more of all goods (which is absolute advantage), but rather producing a specific good more efficiently relative to other goods.
4. Compare the opportunity costs between parties for producing different goods to identify who has the comparative advantage in each good.
5. Conclude that the party with the lower opportunity cost for producing a good has the comparative advantage in that good, enabling beneficial trade.