Question

A country produces computers and rice. If resources are fully employed and there is technological progress only in the production of rice, the opportunity costs of producing computers and rice will change in which of the following ways
a. Computers: Increase / Rice: Increase
b. Computers: Increase / Rice: Decrease
c. Computers: No Change / Rice: Decrease
d. Computers: Decrease / Rice: Decrease

Answer 1

Answer:

b. Computers: Increase / Rice: Decrease  

Explanation:

Opportunity cost refers to the benefits foregone of non chosen option when an option is chosen out of all available options which includes the non chosen option.

At full employment level, resources are employed in the most efficient manner, then to increase the production of one good, certain resources need to be diverted which were earlier used in the production of other goods (assuming the country produces only 2 goods).

Thus, if technology progresses only in the production of one good, that would imply that now the production of such a good would be encouraged.

Hence, the opportunity cost of computers would increase whereas that of producing rise would decrease.