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Consider the following two countries. Assume they produce only these two goods. Note that productivity is now measured in how many goods can be produced per hour, the opposite of how we measured. U.S. Japan Cars 12 10
Computers 4 6A. What is U.S’ opportunity cost of making cars?
B. What is Japan’s opportunity cost of making cars?

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Answer:

A. 1/3 computers

B. 0.6 computers

Explanation:

A. The opportunity cost incurred by the US to make cars is the number of computers it would have to give up to make a car.

The US can either make 12 cars or 4 computers. For every car made therefore the US forgoes;

= 4/12

= 1/3 computers.

B. The same logic applies to Japan. They can either make 10 cars or 6 computers.

Their opportunity cost for cars is therefore;

= 6/10

= 0.6 computers

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