Making a pound of wool takes 5 hours in Scotland and 2 hours in Iceland. Making a cord of firewood takes 5 hours in Scotland and 8 hours in Iceland. Suppose that labor is only productive resource needed in these industries, and is fully employed in both nations. Under these conditions, if Iceland produces 4 extra pounds of wool, but Scotland produces 2 fewer pounds of wool, there is a net

Question

Quizplus · Accepted Answer

To determine the net gain or loss of firewood cords, we need to calculate the opportunity cost of producing pounds of wool in each country. The opportunity cost is the value of the best alternative forgone.

In Scotland, to produce one pound of wool, they give up the opportunity to produce 1/5 cord of firewood (since it takes 5 hours to produce one pound of wool and 5 hours to produce one cord of firewood in Scotland). Therefore, the opportunity cost of producing 4 fewer pounds of wool is 4/5 cord of firewood.

In Iceland, to produce one pound of wool, they give up the opportunity to produce 1/2 cord of firewood (since it takes 2 hours to produce one pound of wool and 8 hours to produce one cord of firewood in Iceland). Therefore, the opportunity cost of producing 4 extra pounds of wool is 2 cords of firewood.

The net gain or loss is the difference between the opportunity costs.

Opportunity cost of Scotland = 4/5 cord of firewood 
Opportunity cost of Iceland = 2 cords of firewood 
Net gain = Opportunity cost of Iceland - Opportunity cost of Scotland 
Net gain = 2 - 4/5 
Net gain = 6/5 - 4/5 
Net gain = 2/5

Therefore, the net gain is 2/5 cord of firewood, which is closest to choice letter B - a gain of 1 cord of firewood in the world.

Making a Pound of Wool Takes 5 Hours in Scotland