Difficulty: Easy

Average Score: 100%

Trade and Opportunity Costs
This passage and table describe the opportunity costs faced by two countries.
1 The countries of Grand Coast and Toland are trading partners. The two main goods
traded are timber and fish. Every year the ministers of trade from each country
attend an international conference to discuss issues related to foreign trade and
decide how each country should specialize. The table provides economic data for
one year.

In Toland, what is the opportunity cost of one unit of timber?

Rationale

In Toland, the opportunity cost of one unit of timber is ½ unit of fish.

The opportunity cost represents what is foregone when a choice is made. In this case, for every unit of timber produced in Toland, the country sacrifices the production of ½ unit of fish, indicating the trade-off between these two goods.

A (½ unit of fish) CORRECT

This choice accurately reflects the opportunity cost in Toland, where the production of one unit of timber results in the loss of ½ unit of fish. This calculation is based on the trade-off outlined in the data provided, indicating the relative value of timber compared to fish.

B (5 units of fish) YOUR ANSWER

This option incorrectly suggests that producing one unit of timber costs Toland 5 units of fish. Such a high opportunity cost would imply a very different production scenario, which does not align with the economic data presented. The actual trade-off is significantly lower, as established in the correct answer.

C (½ unit of timber) YOUR ANSWER

This choice misrepresents the opportunity cost by suggesting that producing timber costs Toland timber itself, which is not a relevant calculation. Opportunity costs are typically expressed in terms of the alternative good sacrificed, in this case, fish, not timber.

D (16 units of timber) YOUR ANSWER

This option suggests an enormous cost associated with producing one unit of timber, which is impractical and does not reflect the economic realities of trade depicted in the passage. The numbers provided in the data do not support such a large opportunity cost.

Conclusion

Understanding opportunity costs is crucial in trade decisions, as it highlights the sacrifices made when allocating resources. In Toland, the opportunity cost of one unit of timber is effectively ½ unit of fish, illustrating the trade-off between these two goods. By accurately assessing these costs, countries can make informed choices about specialization and trade to maximize their economic benefits.