Opportunity Cost & Production Possibility Curves Fill-in-the-Blank Worksheet Instructions: Fill in the blanks with the correct terms or phrases related to opportunity cost and prod... Opportunity Cost & Production Possibility Curves Fill-in-the-Blank Worksheet Instructions: Fill in the blanks with the correct terms or phrases related to opportunity cost and production possibility curves. 1. Opportunity Cost: The concept of opportunity cost refers to the choice that must be given up when choosing one option over another. It represents the value of the next best alternative that is forgone when a decision is made. For example, if a country chooses to produce more cars, the opportunity cost might be producing fewer motorcycles. 2. Trade-Offs: Every decision involves a trade-off, meaning that in order to gain more of one good, the economy must give up less of another good. Trade-offs can be illustrated using the Production Possibility _______. 3. The Production Possibility Curve (PPC): A Production Possibility Curve shows the maximum combinations of two goods/services that an economy can produce, given its available resources and technology. Points on the PPC represent efficient use of resources, while points inside the curve represent inefficient use of resources. The PPC is also called the Production Possibility Frontier. 4. Opportunity Cost and the PPC: Moving from one point to another along the PPC shows the trade-off between the two goods, highlighting the concept of opportunity cost. If an economy moves from producing more Good A to producing more Good B, the opportunity cost is the amount of Good A that must be given up. The shape of the PPC reflects the increasing opportunity cost as more of one good is produced. 5. Economic Efficiency: Points on the PPC are considered efficient because all resources are being fully used. If an economy is producing inside the PPC, it is operating inefficient efficiently, meaning resources like labor and capital are being underutilized. Economic growth or technological advancement would cause the PPC to shift outward. 6. Scarcity and Choices: Scarcity means that resources are limited compared to the unlimited wants of people. Due to scarcity, every society must decide what to produce, how to produce, and for whom to produce. The PPC helps visualize these choices by showing the trade-offs of producing two different goods. Application Question: Look at the following PPC diagram, which shows an economy that can produce either cars or computers. Assume the economy is currently producing at Point A, with 100 cars and 50 computers. If the economy decides to move to Point B, producing 80 cars and 70 computers, what is the opportunity cost of producing the additional 20 computers? Answer: The opportunity cost of producing the additional 20 computers is 20 cars. Additional Challenge: If a country invests in new technology and the PPC shifts outward, what does this imply about the country’s production capacity? What would happen to the opportunity cost of producing one good over another? That implies that the country’s production capacity is increasing, allowing it to produce more of both goods. So, the opportunity cost of producing one good over another may decrease, as resources become more efficiently utilized, allowing for a larger variety of production without sacrificing as much of one good for another. Read more