Identifying Trade Advantages from Production Statements

Steps:

• Analyze statement 1: Lower opportunity cost in production defines comparative advantage, focusing on relative efficiency.
• Analyze statement 2: Producing more output with identical inputs defines absolute advantage, emphasizing total productivity.
• Compare to choices: Statements match the concepts of absolute and comparative advantage, listed in option A.
• Rule out terms of trade: It refers to barter ratios between goods, unrelated to production costs or outputs.

Why A is correct:

• Comparative advantage is defined by lower opportunity cost (statement 1, per Ricardo's theory); absolute advantage by higher output per input (statement 2).

Why the others are wrong:

• B: Terms of trade involves export-import price ratios, not input-based production quantities.
• C: Terms of trade fails to describe greater output from same inputs (statement 2).
• D: Terms of trade does not involve lower opportunity costs (statement 1).

Final answer: A