Pre-IB Economics Practice Exam

Comparative advantage is about opportunity costs—the idea that a country should specialize in and trade goods for which it gives up the least to produce. The best statement captures this: a country can produce a good at a lower opportunity cost than another producer. This matters because even if one country is more efficient at producing both goods (an absolute advantage in both), there can still be gains from trade if the relative sacrifices differ. By focusing on the good with the lower opportunity cost, each country can specialize and trade to enjoy more of both goods than if they tried to produce everything alone. The other descriptions fit different ideas: one describes absolute efficiency, not relative trade-offs; another describes the production possibilities frontier, which shows maximum combinations but not the idea of relative costs; and the last statement is incorrect because trade can be beneficial precisely when there are differences in comparative costs, not only when neither country has any advantage.