ECON 0110 Lecture Notes - Opportunity Cost

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27 Feb 2014

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The best alternative that we give up when we make a choice. To produce more of one item, we must give up some of the other item. In order to produce trucks, must give up some cars. We can increase production of either or both of the items by becoming more efficient. The opportunity cost of 1 additional unit of x equals the slope of the ppf. The ppf is a straight line and has a constant slope. To get more of one item, we always give up a constant amount of the other item. Suppose a country can produce lumber (variable y) or food (variable x) With specialization, assume the country could produce 500 units of lumber or 400 units of food. The slope of the ppf is ( 500/400) = -1. 25. At any point on the ppf, to get one more unit of food, we must give up 1. 25 units of lumber.

Related Questions

8.Consider a PPF which illustrates the trade-off between the production of children's storybooks and college textbooks, with the quantity of children's storybooks on the horizontal axis and the quantity of college textbooks on the vertical axis. Suppose there is an improvement in the technology for producing college textbooks, but technology for making children's storybooks stays unchanged.

a. The efficient production level for storybooks has risen.

b. The opportunity cost of producing storybooks has increased.

c. The efficient production level for storybooks has fallen.

d. The opportunity cost of producing textbooks has increased

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7. Consider a PPF which illustrates the trade-off between the production of children's storybooks and college textbooks, with the quantity of children's storybooks on the horizontal axis and the quantity of college textbooks on the vertical axis.

Suppose there is an improvement in the technology for producing college textbooks, but technology for making children's storybooks stays unchanged.

a.Society can afford to have more college textbooks, but not more children's storybooks. The vertical endpoint should shift up.

b.Society can afford to have more of both goods. The vertical endpoint should shift up.

c.Society can afford to have more of both goods. The PPF should shift out in a parallel manner.

d.Society can afford to have more college textbooks, but not more children's storybooks. The PPF should shift out in a parallel manner.

5. Part A

A point inside the production possibilities frontier is

	A. efficient, but not feasible.
	B. feasible, but not efficient.
	C. both efficient and feasible.
	D. neither efficient nor feasible.

Part B

If at its present point of production Germany must give up 10 units of beer (measured on the vertical axis) to produce one more unit of bread (measured on the horizontal axis), its ____________ of producing another unit of beer is ____________.

a.	absolute advantage; 1/10
b.	opportunity cost; 1/10
c.	comparative advantage; 1/10
d.	opportunity cost; 10

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13) The concept of opportunity cost A) explains that goods are swapped for other goods. B) implies that because productive resources are scarce, we must give up some of one good to acquire more of another. C) implies that a double coincidence of wants must be present for exchange to take place. D) cannot be explained by using a production possibilites frontier. E) implies that when a person is more efficient in the production of one good, he should produce that good and exchange it for some good that he is relatively less efficient at producing

ECON 0110 Lecture Notes - Opportunity Cost

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