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

• A. can produce a good at a lower opportunity cost than another party
• B. faces no trade-offs when making production decisions
• C. can produce more of every good than another party
• D. has absolute superiority in all resources

Answer: (A)

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 means comparative advantage focuses on relative efficiency, not absolute output.
3. Compare this with absolute advantage, which means producing more of every good or having superiority in resources, but this is not the same as comparative advantage.
4. Recognize that the statement 'faces no trade-offs when making production decisions' is incorrect because trade-offs always exist due to limited resources.
5. Conclude that the correct understanding of comparative advantage is that one party can produce a good at a lower opportunity cost than another party.