PS1: Opportunity cost & Production Possibility Frontier

On the Production Possibilities​ Curve, possible production levels are​ represented:

at any point on or below the curve.

Acme Supply is analyzing a Production Possibilities Curve that compares production of wrenches (x​-axis) to production of pliers (y​-axis). If the slope of the PPC is 1​, the opportunity cost of producing pliers in terms of wrenches is ___.

1.00

Suppose that you allocate​ $20 each week for your entertainment budget. This money is spent on two​ items: either renting movies for​ $1 each at Redbox or downloading songs from iTunes at​ $1 each. Given this​ information, which of the following would represent your budget constraint for​ entertainment?

Amount spent on iTunes​ + Amount spent at Redbox​ = $20. Your budget constraint for entertainment illustrates the concept of trade-offs​, since as you increase your purchases of one​ item, you must decrease your purchases of the other item.

Which of the following would not be considered one of the possible opportunity costs of a recent high school graduate starting their career right away by getting a full−time job.

Spending a year backpacking across Europe. Going to Haiti to do missionary work.. Starting college right away.

The opportunity cost of an activity is a measure of what is given up when you do that activity. ​Let's say that you are trying to decide what to do on Friday at 11 a.m. You rank your possible options from the one you value the most to the one that you value the least in the following​ order: going to​ class, sleeping in​ late, going to work​ early, getting​ lunch, going to the gym to​ exercise, and watching television. If you decide to go to​ class, then what do we know about the opportunity cost of your​ decision?

The opportunity cost would be sleeping in​ late, since it was your​ next-best option.

Suppose there are three activities in which you could​ participate: 1. The opportunity cost of the first activity is missing 3 hours of work. 2. The opportunity cost of the second activity is missing a concert that you have tickets to. 3. The opportunity cost of the third activity is missing the afternoon nap that you take every day. Given this​ information, for which of these activities would you be able to compare opportunity​ costs?

You can compare all the activities after you translate all the missed activities into dollar amounts.

The Bureau of Labor Statistics defines the​ labor-force participation rate as the number of people in the labor force​ (those that either have jobs or are actively looking for​ jobs) as a percentage of the​ working-age population. The Organization for Economic Cooperation and Development defines the total fertility rate in a specific year as the total number of children that would be born to each woman if she were to live to the end of her​ child-bearing years. Given the two definitions​ above, let's look at the relationship between the​ labor-force participation rate and the total fertility rate for highly educated women with high earning potential.

You would expect that the​ labor-force participation rate among highly educated women would be higher than average​, since the opportunity cost of not working for highly educated women is higher than that of all women. You would expect that the total fertility rate among highly educated women would be lower than less educated​ women, since the opportunity cost of staying home to raise children is higher for highly educated women.

If you produce at a point on your PPC​, then you are producing at a point that is​ ____________.

attainable and efficient.

Assume every semester after finals you fly back to your hometown using a​ $300 ticket you buy online. You have​ 40,000 frequent flier miles. You could exchange your miles for a​ round-trip ticket to Bermuda over spring break. If you choose to exchange your airline miles for a free trip to Bermuda over spring​ break, then your trip​ _________.

cost​ $300, since your​ next-best alternative for your miles was to use them to fly home at the end of the semester.

A production possibilities curve​ (PPC) ___________.

shows the relationship between the maximum production of one good for a given level of production of another good. A linear PPC would show constant opportunity costs, and a PPC that is curved away from the origin would show increasing opportunity costs.

The concept of opportunity cost is a measure of​ _________.

the value of the best alternative use of a resource.