Which of the following best defines comparative advantage?

Comparative advantage refers to the ability of a producer to create a good or service at a lower opportunity cost compared to another producer. This concept is fundamental in economics as it explains how and why countries can benefit from trade by specializing in the production of goods where they have a comparative advantage.

The notion of opportunity cost is critical here; it represents what one must forgo in order to produce one more unit of a good. When a producer can produce a good with a lower opportunity cost than others, it means they are sacrificing less of other goods to produce that particular good. This specialization leads to more efficient resource allocation, ultimately enhancing overall economic productivity.

When countries trade based on their comparative advantages, both sides can enjoy more goods than they would have been able to produce on their own, thus illustrating the mutual benefits of trade. This principle encourages international trade and cooperation among nations, highlighting the importance of opportunity costs over raw production capabilities alone.