opportunity cost

Question 1

define opportunity cost?

Answer 1

opportunity cost can be defined as the benefit lost from the NEXT BEST ALTERNATIVE when making a choice

Question 2

what does trade off mean ?

Answer 2

trade off is an alternative but not the best option

Question 3

what does short run mean ?

what does long run mean ?

Answer 3

short run = factors of production are fixed

long run = factors of production are variable e.g machinery

Question 4

why is the PPF curve concave ?

Answer 4

The PPF curve is concave due to the law of diminishing curve

Question 5

what is a capital good ?

Answer 5

a capital good is a fixed asset used in production of goods

Question 6

what causes the PPF curve to shift outwards ?

Answer 6

• Factors of Production
• the quality of factors of production
• an increase in factors of production (economic growth)

Question 7

what causes PPF curve to shift inwards ?

Answer 7

• damaging effects of natrual disasters e.g earthquake
• destruction of factors of production
• a decline in productivity
• a delcline in population

Question 8

what is marginal utillity ?

Answer 8

the amount of satisfaction an individual gets from consuming an extra good

Question 9

what is utility maximisation ?

what it the formula for Utility maximisation ?

Answer 9

This occurs when the last £ (pound) a consumer spends on each product yields the same amount of marginal utility.

marginal utility (x)          Marginal utility (y)
\_\_\_\_\_\_\_\_\_\_\_\_     =      \_\_\_\_\_\_\_\_\_\_\_\_
   price  (x)                                price (y)

Question 10

what is accounting profit

what is economic profit

Answer 10

Accounting profit only takes into accouint explicit costs(e.g TFC)

economic profit takes into account explicit and implicit costs