Open ackermanmoriii opened 1 month ago
Sure, I've replaced the formulas with the math
tag as requested:
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}}
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}
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}
By specializing in the production of the good for which they have a comparative advantage, both countries can trade and benefit:
Let's assume both countries decide to trade 1 car for 1 smartphone:
After trade:
Both countries end up with more goods than they would have if they tried to produce both goods on their own.
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:
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
Specialization and Trade
By specializing in the production of the good for which they have a comparative advantage, both countries can trade and benefit:
Gains from Trade
Let's assume both countries decide to trade 1 car for 1 smartphone:
After trade:
Both countries end up with more goods than they would have if they tried to produce both goods on their own.