U1, AOS1 - Lesson 6 - Trade Offs

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

Basic economic problem / Relative scarcity

Answer 2

Basic economic problem is that we have unlimited needs and wants, however, only limited resources to satisfy these needs and wants.

Our resources (natural, labour and capital) are limited relative to our unlimited needs and wants.

Question 3

Cost Benefit Analysis

Answer 3

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

Question 4

Trade off

Answer 4

Analysing the potential other uses of resources

Question 5

Production Possibility Frontier

Answer 5

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 6

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

Answer 6

False: that is the opportunity cost