Comparative Advantage via Opportunity Costs

Steps:

• Define comparative advantage as the ability to produce a good at a lower opportunity cost than another country.
• Identify opportunity cost as the value of the next-best alternative forgone when producing rice.
• Evaluate choices: A matches the definition directly; others involve unrelated factors like trade agreements or inputs.
• Confirm A aligns with Ricardo's theory of comparative advantage.

Why A is correct:

• Comparative advantage exists when a country has a lower opportunity cost in producing a good, per David Ricardo's principle, enabling mutual gains from trade.

Why the others are wrong:

• B: Customs unions affect trade barriers, not production efficiency or costs.
• C: Currency differences impact transactions, not inherent production advantages.
• D: Absolute labor units measure absolute advantage, not comparative (which focuses on relative costs).

Final answer: A