Advantages in Trade

Advantages in Trade - Advantages in Trade We can reexamine...

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Advantages in Trade We can reexamine this example in terms of opportunity costs. Farmer Erica has an opportunity cost of 0.1 pounds of soybeans for every 0.5 pounds of pistachios harvested, or similarly, 5 pounds of pistachios for every 1 pound of soybeans harvested. Farmer Rick has an opportunity cost of 0.1 pounds of pistachios for every 25 pounds of soybeans harvested, or 250 pounds of soybeans for every pound of pistachios harvested. Figure %: Opportunity costs of production Figure 1 depicts the situation described above. Notice that for Farmer Erica, the opportunity cost of harvesting pistachios is lower than the opportunity cost of harvesting soybeans. Similarly, for Farmer Rick, the opportunity cost of harvesting soybeans is lower than the opportunity cost of harvesting pistachios. In both of these cases, this means that both farmers are better off spending their time harvesting the product that they can produce most efficiently.
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