Comparative Advantage from Differing Opportunity Costs

Steps:

• Recall that comparative advantage theory explains gains from trade when countries specialize based on relative efficiencies.
• Identify the core concept: trade benefits occur if each country produces the good with the lowest opportunity cost compared to the other.
• Evaluate choices: A mentions tastes and goods but ignores production efficiencies; C describes absolute advantage, not comparative; D focuses on prices, which result from advantages, not the cause.
• Confirm B aligns directly with the theory's foundation in opportunity cost differences.

Why B is correct:

• Comparative advantage, per David Ricardo's theory, allows mutual gains when countries have different opportunity costs, enabling specialization and trade that exceeds autarky output.

Why the others are wrong:

• A: Differences in goods and tastes enable trade but do not explain the efficiency gains from specialization.
• C: Absolute advantage in both goods leads to one country dominating, not beneficial trade under comparative advantage.
• D: Price differences emerge from advantages but are not the fundamental reason trade is beneficial.

Final answer: B