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Questions and Answers
What is the definition of profit?
What is the definition of profit?
- total revenue
- revenue minus costs (correct)
- revenue plus costs
- costs divided by revenue
What is the definition of opportunity cost?
What is the definition of opportunity cost?
The item or opportunity forgone by a choice
On a production possibility curve, data points that fall outside of the curve represent?
On a production possibility curve, data points that fall outside of the curve represent?
Unobtainable production
What does scarcity force all people and groups to do?
What does scarcity force all people and groups to do?
What is the amount of money you are not earning at work by staying in school?
What is the amount of money you are not earning at work by staying in school?
What does inefficiency refer to in production possibilities?
What does inefficiency refer to in production possibilities?
What is a graphical representation of the combination of goods and services?
What is a graphical representation of the combination of goods and services?
Assessing opportunity cost involves?
Assessing opportunity cost involves?
What is a shortage?
What is a shortage?
What is marginal thinking?
What is marginal thinking?
What does growth refer to in terms of the production possibilities curve?
What does growth refer to in terms of the production possibilities curve?
Producers can create any combination of goods they wish, as long as they?
Producers can create any combination of goods they wish, as long as they?
What is the definition of revenue?
What is the definition of revenue?
Opportunity cost occurs because of a producer's need to?
Opportunity cost occurs because of a producer's need to?
Which of the following lists what we sacrifice by making a choice?
Which of the following lists what we sacrifice by making a choice?
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Study Notes
Economic Concepts Related to Opportunity Cost
- Profit: The surplus obtained from revenues after deducting all associated costs.
- Opportunity Cost: The value associated with the next best alternative that is forgone when making a choice.
- Scarcity: A fundamental economic problem resulting from limited resources that compels individuals and societies to make decisions.
- Shortage: A temporary condition where the supply of a good or service is insufficient to meet demand, resulting from factors that can be uncontrollable or deliberate.
Production and Efficiency
- Production Possibility Curve (PPC): A graphical tool depicting various combinations of goods and services that can be produced with available resources and technology.
- Unobtainable Production: Points beyond the PPC indicate production levels that cannot currently be achieved given the available resources.
- Inefficiency: Represented by points inside the PPC, indicating underutilization of resources.
- Growth: An outward shift of the PPC signifies an increase in an economy's capacity to produce goods and services.
Decision-Making and Resource Allocation
- Marginal Thinking: Analyzing the additional benefits versus the costs of producing one more unit of a good or service.
- Resource Allocation: The process producers use to distribute resources effectively among different goods and services to meet economic demands.
- Assessing Opportunity Cost: Involves evaluating choices and understanding the trade-offs and potential consequences of those choices.
Revenue and Financial Implications
- Revenue: The total earnings generated from the sales of products or services before any expenses are deducted.
- Implication of Staying in School: Opportunity cost is exemplified by incomes forgone when a student opts for education over immediate employment, representing a significant decision in personal finance.
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