As an economy increasingly specializes in producing one good, the opportunity cost of that good increases. The opportunity cost increases because
A) resources are not equally productive in all activities.
B) what must be paid to resources increases.
C) human wants are virtually unlimited.
D) not all goods are equally valuable.
E) as more of a good is produced, the profit from its production must rise.
The correct answer and explanation is :
The correct answer is A) resources are not equally productive in all activities.
Explanation:
As an economy specializes in producing more of a particular good, the opportunity cost of producing that good increases. The opportunity cost refers to the value of the next best alternative that must be forgone to produce more of the good in question.
Why A is correct:
A) Resources are not equally productive in all activities.
- Resources, such as labor, capital, and land, have different levels of efficiency in producing different goods. When an economy specializes in producing one good, it often starts using resources that are less efficient for that specific good. As production increases, these less productive resources are being employed, meaning the cost of producing additional units rises. This is a fundamental concept in economics known as the law of increasing opportunity cost. The more a country focuses on one good, the higher the opportunity cost becomes because it starts reallocating resources that were more efficient in producing other goods. For example, if a country is very efficient at producing both wheat and cars, but it shifts most of its resources to wheat production, it will eventually have to reallocate resources that were better suited for car production, leading to higher opportunity costs in wheat production.
Why the other options are incorrect:
B) What must be paid to resources increases.
- This is not necessarily true. The price paid to resources may increase, but this is not the fundamental reason behind rising opportunity costs. It is about the productivity of resources and not the cost of using them.
C) Human wants are virtually unlimited.
- While human wants are indeed unlimited, this is not the reason for increasing opportunity costs. The concept of opportunity cost is based on the allocation of limited resources to fulfill those unlimited wants.
D) Not all goods are equally valuable.
- While goods may have different values, this does not explain the increase in opportunity cost when an economy specializes. The reason for increasing opportunity cost is related to resource efficiency, not the subjective value of goods.
E) As more of a good is produced, the profit from its production must rise.
- This is incorrect. Typically, as more of a good is produced, the marginal profit or return tends to decrease due to diminishing returns, not increase. This decrease in marginal return also contributes to rising opportunity costs.
In summary, as an economy increasingly specializes, it uses resources that are less suited for the good being produced, causing the opportunity cost to rise. This is due to the fact that not all resources are equally productive in all activities.