Ireland and Japan are assumed to produce only wool and steel, to have full employment and complete mobility of resources. Their production possibilities boundaries before trade are drawn in solid lines. It is assumed that the two countries have the same amount of resources. Their consumption possibilities after trade are shown by the dotted line. The outputs of wool and steel are given in physical units. FIGURE 33- 1
-Refer to Figure 33- 1. Before any trade takes place, the opportunity cost of a unit of steel is

Question

Ireland and Japan are assumed to produce only wool and steel, to have full employment and complete mobility of resources. Their production possibilities boundaries before trade are drawn in solid lines. It is assumed that the two countries have the same amount of resources. Their consumption possibilities after trade are shown by the dotted line. The outputs of wool and steel are given in physical units.  FIGURE 33- 1
-Refer to Figure 33- 1. Before any trade takes place, the opportunity cost of a unit of steel is

Quizplus · Accepted Answer

The opportunity cost of a unit of steel is the amount of wool that could have been produced instead of that unit of steel. In Ireland, the opportunity cost of producing one unit of steel is 3/4 unit of wool (to produce one unit of steel, Ireland has to give up the production of 3/4 unit of wool). In Japan, the opportunity cost of producing one unit of steel is 3/8 unit of wool (to produce one unit of steel, Japan has to give up the production of 3/8 unit of wool). Therefore, the correct answer is A.

Ireland and Japan Are Assumed to Produce Only Wool and Steel