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Questions and Answers
What is opportunity cost defined as?
What is opportunity cost defined as?
- The amount of a good that must be forgone to obtain an additional unit of another good (correct)
- The total cost of producing one more unit of a good
- The time spent in producing a good
- The financial investment required to start a production
How is the opportunity cost of a cell phone calculated?
How is the opportunity cost of a cell phone calculated?
- Total number of cell phones produced divided by DVDs gained
- Number of cell phones gained divided by the total production cost
- Number of cell phones produced multiplied by DVDs forgone
- Number of DVDs forgone divided by the number of cell phones gained (correct)
What happens to the opportunity cost of a cell phone as its production quantity increases?
What happens to the opportunity cost of a cell phone as its production quantity increases?
- It decreases as fewer resources are needed
- It increases as the quantity of cell phones produced increases (correct)
- It remains constant regardless of production levels
- It becomes negative due to economies of scale
What does the slope of the Production Possibilities Frontier (PPF) represent?
What does the slope of the Production Possibilities Frontier (PPF) represent?
What is true about the shape of the PPF?
What is true about the shape of the PPF?
If the opportunity cost of a DVD is the ratio of cell phones forgone to DVDs gained, what can be said about its relationship to the opportunity cost of a cell phone?
If the opportunity cost of a DVD is the ratio of cell phones forgone to DVDs gained, what can be said about its relationship to the opportunity cost of a cell phone?
What reflects a scenario where opportunity cost increases most significantly?
What reflects a scenario where opportunity cost increases most significantly?
When considering efficiency in production, what is crucial in determining opportunity costs?
When considering efficiency in production, what is crucial in determining opportunity costs?
How does an increase in the production of berries from 21 to 26 pounds relate to opportunity cost?
How does an increase in the production of berries from 21 to 26 pounds relate to opportunity cost?
Which factor is NOT typically included in calculating opportunity cost?
Which factor is NOT typically included in calculating opportunity cost?
Flashcards
Opportunity Cost
Opportunity Cost
The amount of one item that must be given up to get more of another.
Opportunity Cost of a Cell Phone
Opportunity Cost of a Cell Phone
The number of DVDs given up to produce one more cell phone.
PPF
PPF
Production Possibility Frontier—a graph showing the maximum possible output combinations of two goods.
Slope of the PPF
Slope of the PPF
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Increasing Opportunity Cost
Increasing Opportunity Cost
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Production Possibilities Frontier (PPF) bowed outward
Production Possibilities Frontier (PPF) bowed outward
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Opportunity Cost Ratio
Opportunity Cost Ratio
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Inverse Relationship of Opportunity Costs
Inverse Relationship of Opportunity Costs
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Efficient Production
Efficient Production
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Opportunity Cost of Berries
Opportunity Cost of Berries
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Study Notes
Opportunity Cost
- Opportunity cost is the amount given up to get something else.
- It represents the trade-off in choices.
- It's calculated as the value of the next best alternative forgone.
- Production possibilities frontier (PPF) is used to calculate opportunity cost.
What is Opportunity Cost?
- Moving between points on a PPF involves a trade-off.
- Opportunity cost reveals how much of one item is traded off for another.
- The amount forgone to get an additional unit of another item is the opportunity cost.
The Opportunity Cost of a Cell Phone
- The opportunity cost of a cellphone is the number of DVDs given up getting an extra cell phone.
- Calculated as the DVDs forgone divided by the number of cellphones gained.
- Example: Opportunity Cost of good Y = No. good X / No. good Y
Opportunity Cost and the Slope of the PPF
- The opportunity cost of a cellphone increases as more cellphones are made.
- The slope of the PPF shows the opportunity cost.
- The PPF's bowed-out shape means the slope changes, becoming steeper as more cellphones are produced.
- Low opportunity cost for cellphones when few are produced on the PPF (gentle slope). Costs increase as production rises. High opportunity cost if many cellphones are produced. The slope is steeper.
Opportunity Cost is a Ratio
- The opportunity cost of a cellphone is the ratio of DVDs forgone to cellphones gained.
- Likewise, the opportunity cost of a DVD is the reverse of the cellphone.
- So, the opportunity cost of a DVD is equal to the opposite of the opportunity cost of a cell phone
Example on opportunity cost (graph)
- The opportunity cost of a cell phone increases as more cellphones are produced.
- The graph shows how the cost of a cellphone in terms of DVDs increases as more are produced.
Assignment: Opportunity Cost
- Given a table of possibilities between fish and berries depending on specific production values, student is asked to find the opportunity cost of a pound of berries when production increases and to determine whether the opportunity cost increases with more berries produced..
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Description
This quiz explores the fundamental principles of opportunity cost, including its definition, calculation, and implications in decision-making. It discusses the production possibilities frontier (PPF) and how trade-offs are represented. Test your understanding of how opportunity cost affects choices, particularly in the context of consumer goods like cell phones and DVDs.
