LS3 - Opportunity Cost

Question 1

What is opportunity cost?

Answer 1

The opportunity cost of a decision is the value of the next best alternative forgone

Question 2

What are the 3 uses of opportunity cost?

Answer 2

Consumers use it to decide what to spend their income on
Producers use to decide what and how to produce goods and services
Government use it decide what policies to choose

Question 3

What is dynamic pricing?

Answer 3

Dynamic pricing is where prices change due to external factors

Question 4

How do you answer an opportunity cost question?

Answer 4

“The opportunity is … and the cost is …”

Question 5

What is the production possibility frontier/curve?

Answer 5

A production possibility frontier shows the maximum potential output of a combination of two goods or services an economy can achieve when all its resources are fully and efficiently employment, given then current level of technology

Question 6

How does economic growth affect the PPF?

Answer 6

Positive economic growth causes an outwards shift
Negative economic growth causes an inward shift

Question 7

What are the causes for an inward shift of the PPF?

Answer 7

Inward movement of the PPF is caused by negative economic growth, war, drought, or any other natural disasters

Question 8

What are causes for an outward shift of the PPF?

Answer 8

The curve experiences an outward shift because of economic shift and improvement of the quality and quantity of the factors of production

Question 9

When is the economy within the PPF?

Answer 9

When there is an inefficient use of the factors of production or under-utilised/under-employed resources

Question 10

What is the relationship between economic growth and quality and quantity of factors of production?

Answer 10

As the quality and quality increases, economic growth increases

Question 11

What is economic growth?

Answer 11

Economic growth is an increase in the production of goods and services in an economy

Question 12

What is negative economic growth?

Answer 12

Negative economic growth is a decrease in the production of goods and services

Question 13

What does it mean if a point is outside the PPF?

Answer 13

The current capabilities of the economy with its technology cannot produce enough goods and services for this point

Question 14

What are consumer goods?

Answer 14

Consumer goods are goods which do not produce other goods. They are used by people to satisfy their wants and needs

Question 15

What are capital goods?

Answer 15

Capital goods are goods which are used to produce other goods and services

Question 16

What does it mean if the economy is on a point on the PPF?

Answer 16

If an economy is at any point on its PPF, there is an efficient allocation of resources, since none are being wasted or under-utilised

Question 17

What does an increase in capital goods mean?

Answer 17

An increase in capital goods results in long term increase in the productive potential of the economy