Question 4 of 10
Which situation best illustrates the concept of absolute advantage?
A. A German factory can build more sports cars than foreign factories.
B. Most of the world's largest companies have operations in many different countries.

C. The total value of Japanese imports is greater than the total value of the country's exports.

D. A French restaurant buys food from nearby farms to support the local economy.

Situation which illustrates best the concept of absolute advantage is: Option A - A German factory can build more sports cars than foreign factories.

Absolute advantage is the potential of an individual, a company, or a country to produce a higher quantity of output than its competitors while using the same inputs. It means an institution with absolute advantage has more efficiency in producing a particular commodity than its rivals. It utilizes lower marginal cost (materials and labor), making its output much cheaper than others.

A factory in German has an absolute advantage because it can produce more sports car than foreign countries. Absolute advantage makes the factory more competitive in the market than its rivals.

Therefore, the correct answer is option A.

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