<p>First of all, an opportunity cost is defined as</p>
<blockquote>
<p>the potential benefits that someone misses out on when choosing one
alternative over another</p>
</blockquote>
<p>Would you mind sharing what book that was and on what page that paragraph is? It's a bit of an odd example in my opinion, which is why I chose to provide a more intuitive example from a textbook below.</p>
<p>In general, even though a country could theoretically be better at doing everything (have an absolute advantage in whatever product or service you can think of), comparative advantage is the reason that in principle trade can still raise everyone's standard of living. Most introductory textbooks explain this with something like wine and cheese producers (not engineers/doctors vs garment manufacturers).</p>
<p>Suppose the US and Bangladesh (b) could use its people as cheese and wine producers (see <a href="https://rads.stackoverflow.com/amzn/click/com/9332518238" rel="nofollow noreferrer" rel="nofollow noreferrer">International Economics by Krugman and Obstfeld</a> P.37)<br></p>
<ul>
<li>cheese: 1h per unit (US) ; 6h per  unit (B)</li>
<li>wine  2h per unit (US) ; 3h per unit (B)</li>
</ul>
<p>One unit can be pretty much anything, a pound of cheese, a gallon of wine or whatever. As you can see, the US is vastly better at producing both cheese and wine (purely an assumption). The opportunity cost of cheese in terms of wine in the US is 1/2, whereas it is 3 in B. Now assume one unit of cheese costs the same as one unit of wine. Therefore, <span class="math-container">$P_{cheese}/P_{wine} = 1$</span>. With this setup, both countries will specialize.</p>
<ul>
<li>It takes only half as many person-hours in the US to produce cheese as it takes to produce wine.</li>
<li>Conversely, it takes twice as many person-hours in B to produce cheese instead of wine.</li>
</ul>
<p>Both countries will &quot;indirectly produce&quot; the other product by trading cheese and wine respectively.</p>
<ul>
<li>Using one hour of US labour directly produces only 1/2 a unit of wine. However, this hour could be used to produce one unit of cheese, which can be sold for 1 unit of wine.</li>
<li>Using one hour of B labour produces 1/6th units of cheese. However, using that hour to produce wine gives 1/3 unit of wine, which can be traded for 1/3 of cheese (twice as much as in direct production).</li>
</ul>
<p>In this example, each country can use labour twice as efficiently to trade for what it needs instead of producing its imports itself.</p>
<p>Therefore, trade expands production possibilities. Assuming each country has 150 person-hours to use, the possible consumption frontiers with and without trade look like this (built in <a href="https://julialang.org/" rel="nofollow noreferrer">Julia</a>).</p>
<pre><code>using Plots
p_c, p_w   = 1, 1
hour_c_us, hour_c_b = 1, 6
hour_w_us, hour_w_b = 2, 3
total_hours = 150

plot([total_hours/hour_c_us - hour_w_us/hour_c_us*unit for unit in 0:75],
        label = &quot;Only home production&quot;)
plot!([total_hours/hour_c_us - hour_w_us/hour_c_us*unit + unit*1  for unit in 0:75*2],
        label = &quot;With trade (and specialization)&quot;)
title!(&quot;US Production possibilities with 150h total&quot;)
ylabel!(&quot;Quantity of cheese (1h per unit)&quot;)
xlabel!(&quot;Quantity of wine (2h per unit)&quot;)
</code></pre>
<p><a href="https://i.sstatic.net/Bte3G.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Bte3G.png" alt="enter image description here" /></a></p>
<p>For the US, only producing cheese would allow a maximum of <span class="math-container">$150/1 = 150$</span>, only producing wine <span class="math-container">$150/2 = 75$</span>. If all cheese production is traded for wine, the US could consume 150 units of wine with trade.</p>
<p>B looks like this:
<a href="https://i.sstatic.net/Bbs9J.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Bbs9J.png" alt="enter image description here" /></a></p>
<p>It an oversimplified model but the textbook I referenced also covers cases where there is no complete specialization. In any case, if cheesemakers (fromagers) would be doctors (or engineers), and wine growers (vintners) would be garment manufacturers you have the same outcome (one would have to adjust the prices and hours significantly to make this &quot;realistic&quot;).</p>
<p>However, the important message is that despite the obvious absolute advantage in both sectors, the US is still better of specializing (or focusing in a more realistic scenario) in the product(s) where it has a comparative advantage.</p>

CC BY-SA 4.0
2022-05-26T00:00:16.807Z
2022-05-26T01:16:00.360Z
2022-05-26T01:16:00.360Z
AKdemy
<p>I read in a book that opportunity cost of manufacturing clothes in Bangladesh is fewer doctors and engineers in USA.</p>
<p>But, USA is big country. Poeple can be doctors and engineers, and there can be manufacturing industry in the country.</p>
<p>The only argument I see is profit maximsation</p>

<opportunity-cost>
Opportunity cost argument for setting up manufacturing sweatshops in poor asian countries
Sahil
# Opportunity cost argument for setting up manufacturing sweatshops in poor asian countries

(Asked by: username_0 on 2022-05-25)

I read in a book that opportunity cost of manufacturing clothes in Bangladesh is fewer doctors and engineers in USA.

But, USA is big country. Poeple can be doctors and engineers, and there can be manufacturing industry in the country.

The only argument I see is profit maximsation

**Tags:** opportunity-cost


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## 1 answers

### Answer by username_1 on 2022-05-26. Score: 3

First of all, an opportunity cost is defined as

the potential benefits that someone misses out on when choosing one
alternative over another

Would you mind sharing what book that was and on what page that paragraph is? It's a bit of an odd example in my opinion, which is why I chose to provide a more intuitive example from a textbook below.
In general, even though a country could theoretically be better at doing everything (have an absolute advantage in whatever product or service you can think of), comparative advantage is the reason that in principle trade can still raise everyone's standard of living. Most introductory textbooks explain this with something like wine and cheese producers (not engineers/doctors vs garment manufacturers).
Suppose the US and Bangladesh (b) could use its people as cheese and wine producers (see International Economics by Krugman and Obstfeld P.37)

cheese: 1h per unit (US) ; 6h per  unit (B)
wine  2h per unit (US) ; 3h per unit (B)

One unit can be pretty much anything, a pound of cheese, a gallon of wine or whatever. As you can see, the US is vastly better at producing both cheese and wine (purely an assumption). The opportunity cost of cheese in terms of wine in the US is 1/2, whereas it is 3 in B. Now assume one unit of cheese costs the same as one unit of wine. Therefore, $P_{cheese}/P_{wine} = 1$. With this setup, both countries will specialize.

It takes only half as many person-hours in the US to produce cheese as it takes to produce wine.
Conversely, it takes twice as many person-hours in B to produce cheese instead of wine.

Both countries will "indirectly produce" the other product by trading cheese and wine respectively.

Using one hour of US labour directly produces only 1/2 a unit of wine. However, this hour could be used to produce one unit of cheese, which can be sold for 1 unit of wine.
Using one hour of B labour produces 1/6th units of cheese. However, using that hour to produce wine gives 1/3 unit of wine, which can be traded for 1/3 of cheese (twice as much as in direct production).

In this example, each country can use labour twice as efficiently to trade for what it needs instead of producing its imports itself.
Therefore, trade expands production possibilities. Assuming each country has 150 person-hours to use, the possible consumption frontiers with and without trade look like this (built in Julia).
using Plots
p_c, p_w   = 1, 1
hour_c_us, hour_c_b = 1, 6
hour_w_us, hour_w_b = 2, 3
total_hours = 150

plot([total_hours/hour_c_us - hour_w_us/hour_c_us*unit for unit in 0:75],
        label = "Only home production")
plot!([total_hours/hour_c_us - hour_w_us/hour_c_us*unit + unit*1  for unit in 0:75*2],
        label = "With trade (and specialization)")
title!("US Production possibilities with 150h total")
ylabel!("Quantity of cheese (1h per unit)")
xlabel!("Quantity of wine (2h per unit)")


For the US, only producing cheese would allow a maximum of $150/1 = 150$, only producing wine $150/2 = 75$. If all cheese production is traded for wine, the US could consume 150 units of wine with trade.
B looks like this:

It an oversimplified model but the textbook I referenced also covers cases where there is no complete specialization. In any case, if cheesemakers (fromagers) would be doctors (or engineers), and wine growers (vintners) would be garment manufacturers you have the same outcome (one would have to adjust the prices and hours significantly to make this "realistic").
However, the important message is that despite the obvious absolute advantage in both sectors, the US is still better of specializing (or focusing in a more realistic scenario) in the product(s) where it has a comparative advantage.


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