Question

In Palmer's article (1999), discussing the opportunity of healthcare, we uncover many issues that are still in existence today. For this reason, I have chosen a somewhat historical article to indicate the significance of the great opportunity costs, if not increased over the years. Palmer (1999) also reviews the choice of "doing nothing" if there is a need to have a procedure.

What are your thoughts about how opportunity cost was presented then and how it relates to today's environment?

Answer 1

Opportunity cost should be presented for finding the comparative advantage. This is very much required in today’s world for inter country trading decision.

An example could be taken as below:

Opportunity cost is the amount of benefit foregone for undertaking an alternative scope of action.

Suppose the table of production is as below:

Countries	Productions (suppose in 1 hour)
	Fruit	Car
Country L	65	45
Country S	20	40

Comparative advantage: This is the comparison between the two countries, of which one has lower opportunity cost than other.

Opportunity costs are given below:

Country L	45/65 = 0.7	65/45 = 1.4
Country S	40/20 = 2	20/40 = 0.5

Now if comparison is done between the two countries, lower opportunity cost should get the comparative advantage.

In case of fruit, country L has the comparative advantage, since 0.7 is the lowest and smaller than 2. Therefore, L should produce fruit and exports it to the country S.

In case of car, country S has the comparative advantage, since 0.5 is the lowest and smaller than 1.4. Therefore, S should produce car and exports it to the country L.

In this way both the countries could be in trading by the efficient use of resources. It happens because of the concept of opportunity cost.