Relate the principle of comparative advantage to the concept of opportunity cost.

The principle of comparative advantage refers to the ability of a party (an individual, a firm, or a country) to produce a particular good or service at a lower opportunity cost than another party. It is the underlying principle for international trade, as it explains why it’s beneficial for countries to specialize in the production of certain goods and services and trade with each other, rather than trying to produce all goods themselves.

Opportunity cost is the value of the next best alternative that must be given up to undertake a certain action, or the cost of using a resource for one good or service rather than another. In other words, it is the value of the next-highest-valued alternative use of a resource that could be used to produce another good or service.

Comparative advantage and opportunity cost are closely related concepts. Comparative advantage is determined by comparing the opportunity cost of producing a good or service between two parties. In trade, if one country has a lower opportunity cost for producing a certain good in comparison to another country, that country has a comparative advantage in producing that good. By specializing in the production of the good with the lowest opportunity cost and trading with other countries, each country can maximize their overall economic efficiency.

Let's consider two countries, Country A and Country B, which can produce two goods: cars and computers. The resources required to produce one car in Country A can instead be used to produce 2 computers. In Country B, the same amount of resources can produce 1 car or 1 computer. The opportunity cost of producing one car in Country A is 2 computers, while in Country B, it is 1 computer. Therefore, Country A has a comparative advantage in producing computers because it only has to give up the production of 0.5 cars to produce each computer (1/2). Meanwhile, Country B has a comparative advantage in producing cars since it only has to give up the production of 1 computer to produce each car. In this scenario, both countries can benefit from trade by specializing in producing the good with the lowest opportunity cost. Country A should focus on producing computers and trade with Country B, who should focus on producing cars. By trading these goods, both countries can increase their economic efficiency and overall production levels.