OPPORTUNIlY COST AND COMPARATIVE ADVANTAGE

There is another way to look at the cost of producing potatoes. Rather than comparing inputs required, we can compare the opportunity costs. Recall from Chapter 1 that the opportunity cost of some item is what we give up to get that item. In our example, we assumed that the farmer and the rancher each spend 8 hours a day working. Time spent producing potatoes, therefore, takes away from time available for producing meat. As the rancher and farmer reallocate time between producing the two goods, they move along their production possibility frontiers; they give up units of one egood to produce units of the other. The opportunity cost measures the trade off between the two goods that each producer faces.