Problem 19

Introduction

When one option is chosen over another, the opportunity cost is defined as the profit lost.

The goal of opportunity cost is to guarantee that scarce resources are used efficiently. It encompasses a person's lost usefulness or economic gains. A country's specialization should be in commodities with a lower opportunity cost. Also one must be familiar with the following terms:

1. Absolute advantage: When a nation uses lesser resources to produce a product as compared to other nations, then then it gains more benefit in international trade, and this is called absolute advantage.
2. Comparative advantage: It is quite similar to opportunity cost. Only when a nation satisfies the criteria of opportunity costs, it can derive gains in trade comparative advantage. The cost of producing a product is compared and analyzed for other goods.