Question

1) Why do economists believe it is better to trade than to remain self-sufficient? Is this always true? Explain in detail.

2) Explain the principle of opportunity cost and provide a detailed example.

Answer 1

1) Economist believe that it is better to trade than to remain self -sufficient.This concept is based upon welfare improvement.welfare improvement is happend by specialization.specialization means when there is more goods to produced then their per unit cost of goods reduces hence it will lower the cost .opportunity cost of production will become lower.we can say that due to lower opportunity cost more goods will be produced globally and prices will be lower.As we knowv resources are limited and being less expensive.

2) Principle of opportunity resources is applicable on scare resources.When there is alternative uses of scare resources , one should be aware about best alternative of it.this decision is based upon what must be given up as a result of the .any decision that involves a choice between two or more options has an opportunity cost.opportunity cost is not what we choose when we choose it is what we did not choose in making a choice.it is the value of forgone alternative.

Example - if there are two options available that 10000 Rs  cash to deposited into bank or investing in business.

If we invest in bank then we get only 10000rs.while if we invest amount then we get 17000 rs.

If select 2nd option then option 1 is opportunity cost.