DECA Sports and Entertainment Marketing Practice Exam

What does comparative advantage mean in a business context?

1. The ability to produce lower-quality products

2. The capacity to produce goods more efficiently than competitors

3. The tactic of reducing prices to gain market share

4. The strategy of diversifying product lines

The correct answer is: The capacity to produce goods more efficiently than competitors

Comparative advantage in a business context refers to a company's ability to produce goods or services more efficiently than its competitors, potentially leading to greater profitability and market share. This efficiency can stem from various factors, such as access to better technology, more skilled labor, lower production costs, or superior processes. By leveraging these efficiencies, a business can not only reduce its costs but also improve the quality of its offerings, thereby positioning itself favorably in the market. When a business has a comparative advantage, it can focus on producing specific goods or services where it excels, allowing it to trade with other companies for products that they produce more effectively. This principle forms the basis of specialization and trade within an economy, leading to overall better resource allocation and enhanced competition. Understanding comparative advantage helps businesses identify their strengths and areas of opportunity in order to strategically position themselves against their competitors.