A widget has an opportunity cost of 4 wadgets in Saudi Arabia and 2 wadgets in the United States. Given these opportunity costs, you would suggest that:
A) Saudi Arabia specialize in widgets and the United States in wadgets.
B) No trade should take place.
C) Saudi Arabia specialize in wadgets and the United States in widgets.
D) Both countries should produce an equal amount of each.

Question

Quizplus · Accepted Answer

Saudi Arabia has a higher opportunity cost for producing widgets (4 wadgets) compared to the United States (2 wadgets), so it should specialize in wadgets. The United States should specialize in widgets, where it has a lower opportunity cost.

A Widget Has an Opportunity Cost of 4 Wadgets in Saudi