Eco

[ackermanmoriii]

Opportunity Cost Formula

The opportunity cost of producing one unit of a good is the amount of the other good that must be given up. The formula is:

$$ \text{Opportunity Cost of Good A} = \frac{\text{Maximum Production of Good B}}{\text{Maximum Production of Good A}} $$

For the USA

• Opportunity Cost of 1 Car:

• \text{Opportunity Cost of 1 Car} = \frac{50 \text{ Smartphones}}{100 \text{ Cars}} = 0.5 \text{ Smartphones} 

• Opportunity Cost of 1 Smartphone: $$ \text{Opportunity Cost of 1 Smartphone} = \frac{100 \text{ Cars}}{50 \text{ Smartphones}} = 2 \text{ Cars} $$

For China

• Opportunity Cost of 1 Car: $$ \text{Opportunity Cost of 1 Car} = \frac{120 \text{ Smartphones}}{80 \text{ Cars}} = 1.5 \text{ Smartphones} $$

• Opportunity Cost of 1 Smartphone: $$ \text{Opportunity Cost of 1 Smartphone} = \frac{80 \text{ Cars}}{120 \text{ Smartphones}} = 0.67 \text{ Cars} $$

Comparative Advantage

• USA has a lower opportunity cost for producing cars (0.5 smartphones per car) compared to China (1.5 smartphones per car).
• China has a lower opportunity cost for producing smartphones (0.67 cars per smartphone) compared to the USA (2 cars per smartphone).

Specialization and Trade

By specializing in the production of the good for which they have a comparative advantage, both countries can trade and benefit:

• USA specializes in producing cars.
• China specializes in producing smartphones.

Gains from Trade

Let's assume both countries decide to trade 1 car for 1 smartphone:

• USA produces 100 cars and trades 50 cars for 50 smartphones.
• China produces 120 smartphones and trades 50 smartphones for 50 cars.

After trade:

• USA has 50 cars and 50 smartphones.
• China has 50 cars and 70 smartphones.

Both countries end up with more goods than they would have if they tried to produce both goods on their own.

[ackermanmoriii]

Sure, I've replaced the formulas with the math tag as requested:

Opportunity Cost Formula

The opportunity cost of producing one unit of a good is the amount of the other good that must be given up. The formula is:

\text{Opportunity Cost of Good A} = \frac{\text{Maximum Production of Good B}}{\text{Maximum Production of Good A}}

For the USA

• Opportunity Cost of 1 Car:

  \text{Opportunity Cost of 1 Car} = \frac{50 \text{ Smartphones}}{100 \text{ Cars}} = 0.5 \text{ Smartphones}

• Opportunity Cost of 1 Smartphone:

  \text{Opportunity Cost of 1 Smartphone} = \frac{100 \text{ Cars}}{50 \text{ Smartphones}} = 2 \text{ Cars}

For China

• Opportunity Cost of 1 Car:

  \text{Opportunity Cost of 1 Car} = \frac{120 \text{ Smartphones}}{80 \text{ Cars}} = 1.5 \text{ Smartphones}

• Opportunity Cost of 1 Smartphone:

  \text{Opportunity Cost of 1 Smartphone} = \frac{80 \text{ Cars}}{120 \text{ Smartphones}} = 0.67 \text{ Cars}

Comparative Advantage

• USA has a lower opportunity cost for producing cars (0.5 smartphones per car) compared to China (1.5 smartphones per car).
• China has a lower opportunity cost for producing smartphones (0.67 cars per smartphone) compared to the USA (2 cars per smartphone).

Specialization and Trade

By specializing in the production of the good for which they have a comparative advantage, both countries can trade and benefit:

• USA specializes in producing cars.
• China specializes in producing smartphones.

Gains from Trade

Let's assume both countries decide to trade 1 car for 1 smartphone:

• USA produces 100 cars and trades 50 cars for 50 smartphones.
• China produces 120 smartphones and trades 50 smartphones for 50 cars.

After trade:

• USA has 50 cars and 50 smartphones.
• China has 50 cars and 70 smartphones.

Both countries end up with more goods than they would have if they tried to produce both goods on their own.