Difficulty: Hard

Average Score: 0%

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

A) ½ unit of fish

The opportunity cost of one unit of timber in Toland is represented by the quantity of fish that must be foregone to produce that additional unit of timber. In this context, the opportunity cost of 1 unit of timber is sacrificing the production of ½ unit of fish to redirect resources towards timber production.

B (5 units of fish) YOUR ANSWER

This choice inaccurately represents the opportunity cost by suggesting that producing 1 unit of timber in Toland requires sacrificing 5 units of fish. However, based on the data provided, the actual opportunity cost is ½ unit of fish for 1 unit of timber, not 5 units.

C (½ unit of timber) YOUR ANSWER

This option confuses the concept of opportunity cost by implying that to produce 1 unit of timber in Toland, the country gives up ½ unit of timber. Opportunity cost refers to what is given up to produce more of a specific good, which in this case is ½ unit of fish, not timber.

D (16 units of timber) YOUR ANSWER

The opportunity cost of 1 unit of timber cannot be 16 units of timber itself in Toland. Opportunity cost does not refer to the quantity of the same good that is foregone; rather, it pertains to the value of the next best alternative that is sacrificed.

Conclusion

Understanding opportunity cost is crucial in analyzing trade-offs between producing different goods. In the context of Toland's timber production, the opportunity cost of 1 unit of timber is accurately represented by sacrificing ½ unit of fish. By recognizing these trade-offs, countries can make informed decisions regarding resource allocation and specialization to maximize economic efficiency.