opportunity cost

Question 1

opportunity cost

Answer 1

the cost of the next best alternative forgone when a choice is to be made

Question 2

ppf curve and economic growth

Answer 2

economic growth can be shown by an outward shift in the ppf, from the curve with point A on it, to the curve with point B on it.

a decline in the economy would be depicted by an inward shift

Question 3

capital goods

Answer 3

goods which can be used to produce other goods, such as machinery

Question 4

consumer goods

Answer 4

goods which cannot be used to produce other goods, such as clothing

Question 5

ppf curve outward shifts

Answer 5

• an increase in the quantity or quality of resources shifts the ppf curve outwards, so the productive potential of the economy increases, and there is economic growth.
• the opportunity cost of producing either capital or consumer goods reduces, since more goods can be produced overall

Question 6

ppf movement along the curve

Answer 6

• uses the same number and state of resources, and shifts production from fewer consumer goods to more capital goods.
• incurs an opportunity cost

Question 7

how useful is the concept of opportunity cost

Answer 7

• some alternatives are not easy to quantify. eg, spending a year travelling or a year gaining work experience will yield different benefits to consumers, which are not necessarily directly comparable.
• because opportunity costs relate to future events, they are difficult to place a monetary value on.
• many firms operate on predetermined targets which overlook opportunity cost
• opportunity costs always exist because of scarce resources. therefore, they are often overlooked in reality