U1, AOS1 - Lesson 3 - Opportunity Costs

Question 1

Opportunity Cost

Answer 1

The value of the next best alternative that is foregone whenever a choice or decision is made.

• Examples:*
• You have $50 in your pocket, you decide to go out for dinner with some friends, instead of buying a new shirt for summer = opportunity cost is the new shirt*
• Free pizza is being offered on Enderly lawn, however there is a long queue, what is the opportunity cost of consuming a piece of pizza? = opportunity cost is the time spent in line.*

Question 2

Cost Benefit Analysis

Answer 2

Weighting up the positives and negatives of an economic decision to conclude whether an economy is better or worse off

Question 3

Trade off

Answer 3

Analysing the potential other uses of resources

Question 4

Production Possibility Frontier

Answer 4

A theoretical diagram which shows all of the potential production combinations of a country which is producing 2 similar goods or services.

This helps to identify production possibilities which achieve productive or allocative efficiency as well as identify opportunity costs and trade offs.

Question 5

The three basic economic questions

Answer 5

What and how much to produce
How to produce
For whom to produce

Question 6

True/False: All points along the PPF are allocatively efficient

Answer 6

False: Only one point is allocatively efficient, all points along the curve are technically efficient.

Question 7

True/False: The production foregone when producing the next best alternative is known as a trade-off

Answer 7

False: that is the opportunity cost

Question 8

True/False: A point inside of the production possibility curve is an inefficient allocation of resources

Answer 8

True: insides the PPF it means that a nations resources are not being used to their full capacity.