What principle describes the ability to produce a good at a lower opportunity cost than others?

The principle that describes the ability to produce a good at a lower opportunity cost than others is known as comparative advantage. This concept is fundamental in economics and explains how entities (such as individuals, businesses, or countries) can benefit from trade by specializing in the production of goods for which they have a lower opportunity cost compared to others. When each participant focuses on what they produce most efficiently relative to others, overall production increases, leading to enhanced economic welfare.

Comparative advantage emphasizes the relative efficiency in production rather than outright productivity, which is the focus of absolute advantage. In cases of market equilibrium, the balance between supply and demand is analyzed, without specific reference to the relative advantages among producers. Resource allocation pertains to how resources are distributed among different uses, but it does not specifically address the efficiencies of production based on opportunity costs. Consequently, the concept of comparative advantage is key for understanding trade dynamics and the specialization of production in an economic context.