U1 AOS1 - Lesson 6 - Trade Offs

Question 1

Trade off

Answer 1

Analysing the potential other uses of resources

Question 2

Production Possibility Frontier

Answer 2

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 3

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

Answer 3

False: that is the opportunity cost

Question 4

Point of Difference between Trade Off and Opportunity Cost

Answer 4

Whether it considers the option foregone or not.

Opportunity cost specificially refers to the cost of the option foregone when a decision is made, while a trade off is the option that is foregone (not the cost of it)

For example, a student needs to decide whether to attend university or work locally.

• The opportunity cost, if the student decides to not go to university, is the income from a well-paid job.
• If the student decides to go to university, the opportunity cost is the cost of university, such as HECS.
• The trade off of choosing to go to university is working the local job while the trade off of working the local job is going to university.

Question 5

What is the Opportunity Cost of moving from point A to B?

Answer 5

Cost of being selling 20 apples

If apples are $2 each, the opportunity cost is $40.

Question 6

What is the trade off of moving from point A to B?

Answer 6

The ability to sell 20 apples (there is no monetary value)

Question 7

Relationship Between Trade Off and Opportunity Cost

Answer 7

A trade off means that when one decision on how to use resources is made, an alternative is no longer possible. Opportunity costs then arise as the decision that is foregone involves a sacrifice/loss

Question 8

Farmer Joe can produce either 20 apples or 10 pears in a season.

What is the opportunity cost of producing the apples?
What is the opportunity cost of producing the pears?
What is the trade off?

Answer 8

Opportunity cost of producing apples = 10 pears

Opportunity cost of producing pears = 20 apples

Trade off is between producing apples and pears

Question 9

What is a likely trade-off in the long-term that is commonly associated with growing the size of the economy and the PPF?

A. Increased greenhouse gas emissions
B. Decreased resource depletion
C. Increased employment opportunities
D. All of the above

Answer 9

A