Currently, a farmer can either grow 40 bushels of wheat or 120 bushels of corn per acre. If he were able to trade 70 bushels of corn for 30 bushels of wheat, would he be better off or worse off?
A) worse off, because his opportunity cost of wheat would increase from 2.33 bushels of corn to 3 bushels of corn
B) better off, because his opportunity cost of wheat would fall from 80 bushels to 50 bushels
C) better off, because his opportunity cost of wheat would fall from 3 bushels of corn to 2.33 bushels
D) worse off, because his opportunity cost of wheat would increase from 50 bushels of corn to 80 bushels of corn

Question

Quizplus · Accepted Answer

The farmer's opportunity cost of wheat is the amount of corn he must give up to produce one unit of wheat. Before the trade, the opportunity cost of wheat was 3 bushels of corn (120 corn / 40 wheat). After the trade, the farmer gives up 70 bushels of corn to obtain 30 bushels of wheat, which means his opportunity cost of wheat is now 2.33 bushels of corn (70 corn / 30 wheat). Therefore, the farmer is better off after the trade because his opportunity cost of wheat has fallen.

Currently, a Farmer Can Either Grow 40 Bushels of Wheat