Suppose there is a simple two good economy that produces fish and cars. When the economy increases its production of fish from 0 to 15 tons of fish, it has a relatively small opportunity cost in terms of cars. What is the most likely explanation for this?

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Business

Dozer

18 September, 12:18

Suppose there is a simple two good economy that produces fish and cars. When the economy increases its production of fish from 0 to 15 tons of fish, it has a relatively small opportunity cost in terms of cars. What is the most likely explanation for this?

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Tomas Palmer · Answer 1

The most likely explanation for the relatively small opportunity cost that the economy incurs as a result of increasing production of fish from 0 to 15 tons is that the economy will lose some of the benefits it derives from the production of cars now that more resources have been committed to the production of fish. It is like a question of not being able to "eat your cake and have it." Something must give way.

Opportunity cost is an economic cost that an entity or individual bears when it forgoes one option in preference to another. Once there is a choice between two options, economists will always recognize the forgone benefits from the other option a consequence of the loss.

Explanation:

When economists refer to the "opportunity cost" of a resource, they imply that the value of the next-highest-valued alternative resource will be lost. This means that a cost is incurred by not enjoying the benefit associated with the best alternative choice. A consideration of opportunity cost is, therefore, an assessment of the relative risk of each option vis-a-vis its potential returns.