Opportunity cost
Evaluate the usefulness of the concept of opportunity cost.
Opportunity cost may affect decisions made by economic agents. It helps firms/ governments to make more useful decisions.
Explain what is meant by the PPC/F?
The PPC is a diagram used by economists when exploring the idea of opportunity costs and it shows the maximum combination of goods and services that can be produced in a given set period with the factors of production available.
What happens to the opportunity cost when you specialise more in the production of one good?
The opportunity cost increases as we are giving up more and more of something else when we choose to specialise in one thing. Allow government to make decisions about expenditure. Make a xg
Explain the factors causing the PPC to shift?
1. Changes in the quantity of resources o The quantity of labour may increase as a result of net immigration of people of working age, a higher proportion of women entering the labour force or a rise in the retirement age. o The purchase of extra capital goods, referred to as net investment, increases the quantity of capital goods causing the PPC to increase (shift to the right). o The quantity of enterprise may be increased by a reduction in rules and regulations placed on firms, privatisations and government incentives to start up new businesses 2. Changes in the quality of resources o Improvements in education and training will improve the quality of labour and raise productivity causing the PPC to increase (shift to the right) o The quality of capital goods is raised by advances in technology causing the PPC to shift right. o The quality of enterprise may be raised by management training and improved education For example, a PPC may shift inwards if a natural disaster occurred as the inputs of production are destroyed so less goods and services can be produced.
Explain the concept of opportunity cost.
Due to scarcity, we are forced to make choices for example what to goods to produce with the limited resources we have. The cost of making a choice is that the next best alternative is forgone. This is know as opportunity cost. For example if a Government decides to make the choice of devoting more resources to the NHS then the opportunity cost is devoting those resources into the education system. For example the opportunity cost of deciding not to work for an extra ten hours a week is the lost wages foregone.
Explain what is meant by trade-off.
all the alternatives that we give up when we make a choice. It is a type of opportunity cost. For example, going out on Friday night could involve several economic trade-offs. Let's say you really want to go to the bar with your friends. You will likely spend $40 that evening and get home at 1 AM. The first trade-off might be the four hours you are giving up that you could use to perhaps finish your term paper. The next is the $40 that u could have used to buy petrol.
Explain how a PPC/F can be used to illustrate scarcity, choice, opportunity cost and productive efficiency.
if point is within PPC then an economy is not maximising the use of its resources, there are some resources left and therefore this leads to unemployment in an economy, not productively efficient as our output is less than it should be. Not operating at its full capacity. If the Point is along the PPC then an economy is making full use of its resources, illustrating productive efficiency. Points beyond the PPC are unreachable with the available resources which illustrates scarcity.