Question

There are two goods, apples and oranges, in a country. If the relative price of apples (in terms of oranges) is 4 and the opportunity cost of an apple is 3 oranges, what will workers produce?

Answer 1

Answer:

The workers will only produce oranges.

Explanation:

'Opportunity cost' is an important concept which shows the relationship between choice and scarcity. For example: One can spend money and time on one thing at a time but loses the opportunity do perform the other things, which would be his opportunity cost. Like you take a vacation for the money you have but the opportunity cost is not having a new car.

Relative price is the price of one commodity in terms of another. In the given situation, opportunity cost of an apple is 3 oranges and relative price of apple is 3, so the workers will produce only oranges, as it will be more profitable.