In an economy producing only two goods X and Y, the opportunity cost of producing 5 units of good X is 3 units of good Y.
The above statement implies that _____.
(choose the correct option)
In an economy producing only two goods X and Y, the opportunity cost of producing 5 units of good X is 3 units of good Y.
The above statement implies that _____.
(choose the correct option)
Solution
Option 1 -> This suggests both goods can be produced simultaneously, which doesn't address the concept of opportunity cost.
Option 2 -> This also suggests simultaneous production of both goods, which misinterprets the opportunity cost statement.
Option 3 -> This correctly interprets opportunity cost - to gain 5 units of X, we must sacrifice/reduce 3 units of Y production.
Option 4 -> This reverses the ratio incorrectly, stating 5Y must be sacrificed for 3X instead of 3Y for 5X.
Hence, Option 3: To produce 5 units of good X, production of good Y needs to be reduced by 3 units. -> Opportunity cost represents what must be given up to produce something else. When we say the opportunity cost of 5 units of X is 3 units of Y, it means the economy must sacrifice or forego the production of 3 units of Y in order to free up resources to produce 5 units of X. This reflects the fundamental economic problem of scarcity and trade-offs in resource allocation. -> correct
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