With specialization in a market economy, individuals:

• A. produce all goods and services they need by themselves
• B. focus on producing goods or services in which they have a comparative advantage
• C. face higher opportunity costs for all activities
• D. ignore incentives and market signals

Answer: (B)

Verified step by step guidance

1. Understand the concept of specialization in a market economy: it means individuals or firms concentrate on producing goods or services where they have an advantage.
2. Recall the definition of comparative advantage: it occurs when an individual or firm can produce a good or service at a lower opportunity cost than others.
3. Recognize that specialization based on comparative advantage allows individuals to produce more efficiently and trade for other goods and services they need.
4. Analyze the options given: producing all goods by themselves contradicts specialization; facing higher opportunity costs for all activities is incorrect because specialization reduces opportunity costs; ignoring incentives and market signals is inconsistent with market economy behavior.
5. Conclude that the correct understanding is that individuals focus on producing goods or services in which they have a comparative advantage.