What does comparative advantage mean?

Comparative advantage refers specifically to the ability of an entity, be it an individual, firm, or country, to produce a particular good or service at a lower opportunity cost compared to others. Opportunity cost is what is foregone to produce one item over another. When an entity has a comparative advantage in producing a good, it means that it can produce that good more efficiently relative to other alternatives, allowing it to trade and specialize effectively.

This concept underpins the rationale for international trade and economic specialization. It highlights that even if one entity is less efficient than another in producing all goods (absolute advantage), it can still benefit from trade by focusing on the goods for which it has the lowest opportunity cost compared to other entities.

The other options touch on different aspects of production and market dynamics but do not accurately capture the essence of comparative advantage. Producing goods with high quality relates to quality standards rather than opportunity cost. Dominating a specific market focuses on market power rather than efficiency in production. Reducing production costs is a general goal but does not address the fundamental concept of opportunity cost that defines comparative advantage.