Jack's Opportunity Cost and Trade

Understanding Opportunity Cost and Trade

Jack's opportunity cost of producing a ton of grapes is higher than, Stephen's, so Stephen can gain from specialization and trade with Jack. In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity compared to engaging in an alternative activity. Simply put, this means that once you have decided on an activity, you give up your ability to choose another option.

The farmer decided to plant wheat. The opportunity cost is to grow another crop or use resources (land and farm tools) in another way. Commuters commute by train instead of by car.

What is the concept of opportunity cost in microeconomic theory?

The concept of opportunity cost in microeconomic theory refers to the value or benefit given up by engaging in a particular activity compared to engaging in an alternative activity.