Economics – Scarcity, choice and opportunity cost | e-Consult

Calculation:

The country currently produces 60 units of wheat and 20 units of computers. It can produce 100 units of wheat or 50 units of computers. Increasing wheat production by 10 units means producing 70 units of wheat. To produce 70 units of wheat, the country must shift resources away from computers. The current production of computers is 20 units. Therefore, the country must forgo producing 50 - 20 = 30 units of computers.

Opportunity Cost: The opportunity cost of increasing wheat production by 10 units is 30 units of computers. This is because the country is giving up the value of the next best alternative – the computers that could have been produced with those resources. The opportunity cost is not simply the labor or materials used to produce the additional wheat; it's the value of the best alternative use of those resources.

Explanation: This example demonstrates that even if a country has the capacity to produce more of both goods, it still faces opportunity costs. The decision to increase wheat production involves a trade-off – a reduction in computer production. Understanding this trade-off is crucial for making efficient resource allocation decisions.