Which of the following best describes the difference between absolute advantage and comparative advantage?

• A. Comparative advantage is based on total output, while absolute advantage is based on opportunity cost.
• B. Absolute advantage refers to the ability to produce more of a good with fewer resources, while comparative advantage refers to the ability to produce a good at a lower opportunity cost.
• C. Absolute advantage is when a country can produce all goods more efficiently than another country, while comparative advantage is when a country can produce all goods at a lower cost.
• D. Absolute advantage and comparative advantage both refer to producing goods at the lowest possible cost.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of absolute advantage. Absolute advantage occurs when a producer (individual, firm, or country) can produce more of a good or service using the same amount of resources or can produce the same amount using fewer resources compared to another producer.
2. Step 2: Understand the concept of comparative advantage. Comparative advantage refers to the ability of a producer to produce a good or service at a lower opportunity cost than another producer. Opportunity cost is what you give up to produce one more unit of a good.
3. Step 3: Recognize that absolute advantage focuses on productivity and efficiency in terms of total output or resource use, while comparative advantage focuses on the relative opportunity costs between producers.
4. Step 4: Compare the definitions to the answer choices. The correct description should highlight that absolute advantage is about producing more with fewer resources, and comparative advantage is about producing at a lower opportunity cost.
5. Step 5: Eliminate incorrect options by checking if they confuse total output with opportunity cost or incorrectly state that both advantages refer to the lowest possible cost without distinguishing between absolute and comparative concepts.