Question

The terms of trade are acceptable if the price is ________ the seller’s opportunity cost and ______ the buyer’s opportunity cost.

Answer 1

The terms of trade are acceptable if the price is above the seller’s opportunity cost and below the buyer’s opportunity cost.

Explanation:

The benefits that we spend in attaining something is the opportunity cost. The profits or values that you give up to get something is called Opportunity cost. For example when you choose to go to movie, the amount that you spend on the movie will not be spent on getting anything else or the time that you spend in watching the movie cannot be spent on reading stories or any other act.

This next best alternative that is forgone in seeing a movie is called opportunity cost. Opportunity cost can be calculated by subtracting the return on the option that is chosen from the return on the best forgone option. When the price of anything is above  the opportunity cost of seller and below the opportunity cost of the buyer, then the trade will be acceptable.