Figure 2-9 Cashews (pounds) 150 Pakistan Indonesia Cashews (pounds) 120 240 Cotton (bolts) What Is The Opportunity Cost Of Producing 1 Pound Of Cashews In Indonesia? O 22/3 Bolts Of Cotton O 5/8 Of A Bolt Of Cotton 320 Bolts Of Cotton O 3/8 Of A Bolt

Mar 8, 2025 by ADMIN 251 views

**Understanding Opportunity Costs in International Trade**

Introduction

Opportunity cost is a fundamental concept in economics that helps us understand the trade-offs involved in making decisions. In the context of international trade, opportunity cost refers to the value of the next best alternative that is given up when a country chooses to produce or consume a particular good. In this article, we will explore the concept of opportunity cost using the example of cashews and cotton production in Indonesia.

The Opportunity Cost of Producing Cashews in Indonesia

Let's consider the data provided in Figure 2-9:

Country	Cashews (pounds)	Cotton (bolts)
Pakistan	150	240
Indonesia	120	240

To calculate the opportunity cost of producing 1 pound of cashews in Indonesia, we need to find out how much cotton is given up when 1 pound of cashews is produced. We can do this by dividing the number of bolts of cotton produced in Indonesia by the number of pounds of cashews produced.

Calculating Opportunity Cost

Let's calculate the opportunity cost of producing 1 pound of cashews in Indonesia:

Opportunity Cost = (Number of bolts of cotton produced in Indonesia) / (Number of pounds of cashews produced in Indonesia)

Opportunity Cost = 240 bolts / 120 pounds

Opportunity Cost = 2 bolts per pound

However, we are asked to find the opportunity cost in terms of a fraction of a bolt. To do this, we can divide the opportunity cost by 2:

Opportunity Cost = 2 bolts / 2 = 1 bolt per 2 pounds

Opportunity Cost = 1/2 bolt per pound

But we are asked to find the opportunity cost in terms of a fraction of a bolt. To do this, we can multiply the opportunity cost by 8/8:

Opportunity Cost = (1/2) * (8/8) = 4/8 = 1/2

Opportunity Cost = 1/2 * 8/8 = 4/8 = 1/2

Introduction

Q&A: Opportunity Costs in International Trade

Q: What is opportunity cost?

A: Opportunity cost is the value of the next best alternative that is given up when a country chooses to produce or consume a particular good.

Q: How is opportunity cost calculated?

A: Opportunity cost is calculated by dividing the value of the next best alternative by the quantity of the good being produced or consumed.

Q: What is the opportunity cost of producing 1 pound of cashews in Indonesia?

A: To calculate the opportunity cost of producing 1 pound of cashews in Indonesia, we need to find out how much cotton is given up when 1 pound of cashews is produced. We can do this by dividing the number of bolts of cotton produced in Indonesia by the number of pounds of cashews produced.

Opportunity Cost = (Number of bolts of cotton produced in Indonesia) / (Number of pounds of cashews produced in Indonesia)

Opportunity Cost = 240 bolts / 120 pounds

Opportunity Cost = 2 bolts per pound

However, we are asked to find the opportunity cost in terms of a fraction of a bolt. To do this, we can divide the opportunity cost by 2:

Opportunity Cost = 2 bolts / 2 = 1 bolt per 2 pounds

Opportunity Cost = 1/2 bolt per pound

Q: What is the opportunity cost of producing 1 pound of cashews in Indonesia in terms of a fraction of a bolt?

A: The opportunity cost of producing 1 pound of cashews in Indonesia in terms of a fraction of a bolt is 1/2 bolt.

Q: Why is opportunity cost important in international trade?

A: Opportunity cost is important in international trade because it helps us understand the trade-offs involved in making decisions. By considering the opportunity cost of producing or consuming a particular good, countries can make informed decisions about how to allocate their resources.

Q: How can opportunity cost be used to inform trade policy decisions?

A: Opportunity cost can be used to inform trade policy decisions by helping policymakers understand the trade-offs involved in different policy options. For example, if a country is considering imposing tariffs on a particular good, policymakers can use opportunity cost to estimate the impact on the country's economy.

Conclusion

Opportunity cost is a fundamental concept in economics that helps us understand the trade-offs involved in making decisions. In the context of international trade, opportunity cost refers to the value of the next best alternative that is given up when a country chooses to produce or consume a particular good. By understanding opportunity cost, countries can make informed decisions about how to allocate their resources and make trade policy decisions that benefit their economy.

Frequently Asked Questions

Q: What is the opportunity cost of producing 1 pound of cashews in Indonesia?

A: The opportunity cost of producing 1 pound of cashews in Indonesia is 2 bolts per pound.

Q: What is the opportunity cost of producing 1 pound of cashews in Indonesia in terms of a fraction of a bolt?

A: The opportunity cost of producing 1 pound of cashews in Indonesia in terms of a fraction of a bolt is 1/2 bolt.

Q: Why is opportunity cost important in international trade?

A: Opportunity cost is important in international trade because it helps us understand the trade-offs involved in making decisions.

Q: How can opportunity cost be used to inform trade policy decisions?

A: Opportunity cost can be used to inform trade policy decisions by helping policymakers understand the trade-offs involved in different policy options.

Glossary

Opportunity cost: The value of the next best alternative that is given up when a country chooses to produce or consume a particular good.
International trade: The exchange of goods and services between countries.
Trade policy: The decisions made by governments to regulate international trade.
Tariffs: Taxes imposed on imported goods.
Quotas: Limits on the quantity of a good that can be imported or exported.