In an economy producing only two goods X and Y, the opportunity cost of producing 5 units of good X is 3 units of good Y. The above statement implies that _____.

(choose the correct option)

To produce 5 units of good X, production of good Y needs to be reduced by 3 units.

The correct answer is Option (3) → To produce 5 units of good X, production of good Y needs to be reduced by 3 units.

The opportunity cost of producing a good is the amount of another good that must be sacrificed to produce one more unit of it.

Here, the statement says that producing 5 units of good X requires giving up 3 units of good Y, which means:

• The economy reallocates resources from producing Y to producing X.

• Hence, to produce 5 units of X, 3 units of Y must be forgone.