Why does every choice involve an opportunity cost quizlet?
Opportunity cost is the most desirable alternative given up as the result of a decision. It is important because it creates opportunities and variation in the economy.
How is opportunity cost used in decision making?
In business, opportunity costs play a major role in decision-making. If you decide to purchase a new piece of equipment, your opportunity cost is the money spent elsewhere. Companies must take both explicit and implicit costs into account when making rational business decisions.
Is opportunity cost good or bad?
Incurring opportunity costs is not inherently bad, as they do not detract from business decisions; instead, opportunity costs often enhance the decision-making process. Businesses engage in this type of decision-making to ensure the benefits of their decision are always greater than the cost of an alternative.
What are the benefits of opportunity cost?
Opportunity Cost helps a manufacturer to determine whether to produce or not. He can assess the economic benefit of going for a production activity by comparing it with the option of not producing at all. He may invest the same amount of money, time, and resources in another business or Opportunity.
Why is opportunity cost important to firms?
Opportunity cost means real cost and it is different from money cost. (iii) Importance of opportunity cost to the firms: It helps the firms or industry in making decision on which resources to use in production and the method of production to be used, i.e. capital intensive or labour intensive.
What is the law of increasing opportunity cost?
The law of increasing opportunity cost states that each time the same decision is made in resource allocation, the opportunity cost will increase.
Why is PPF curved and not straight?
The first is the fact that the budget constraint is a straight line. This is because its slope is given by the relative prices of the two goods. In contrast, the PPF has a curved shape because of the law of the diminishing returns. The second is the absence of specific numbers on the axes of the PPF.
Why is PPF bowed out?
A production possibilities curve shows the combinations of two goods an economy is capable of producing. The bowed-out shape of the production possibilities curve results from allocating resources based on comparative advantage. Such an allocation implies that the law of increasing opportunity cost will hold.
Why would a PPF be a straight line?
A straight line PPF: A straight line PPF where the opportunity cost is constant. The slope of the PPF shows the rate at which the production of one good can be transferred to another. Within an economy, if the capacity to produce both goods increases, the result is economic growth.
Why is a PPC curved?
The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. The bowed out shape of the PPC in Figure 1 indicates that there are increasing opportunity costs of production.
Why does PPC slope downward?
The downward sloping nature of the PPC is due to the law of increasing opportunity cost. According to this law, with the fuller utilisation of the given resources, in order to produce an additional unit of one good, some of the resources are to be withdrawn from the production of another good.
What is the slope of PPC?
The slope of production possibility curve is the marginal opportunity cost which refers to the additional sacrifice that an economy makes when it shifts resources and technology from production of one commodity to the other.
What is the slope of production possibility curve?
The slope of the PPF indicates the opportunity cost of producing one good versus the other good, and the opportunity cost can be compared to the opportunity costs of another producer to determine comparative advantage.
Why is PPC downward sloping and concave to the origin?
Answer: PPC is concave to the origin because of increasing Marginal opportunity cost. This is because inorder to increase the production of one good by 1 unit more and more units of the other good have to be sacrificed since the resources are limited and are not equally efficient in the production of both the goods.
Why is PPC concave 11?
PPC is concave to the origin because of increasing Marginal opportunity cost. This is because inorder to increase the production of one good by 1 unit more and more units of the other good have to be sacriced since the resources are limited and are not equally efficient in the production of both the goods.
Can PPC be convex?
PPC is concave shaped because of increasing marginal rate of transformation. It implies that more and more units of commodity sacrificed to gain an additional unit of another commodity. PPC is convex shaped because of decreasing marginal rate of transformation.
What is the slope of PPC What does it indicate why is PPC concave to the origin?
Production possibility curve is concave to the origin. It shows an increasing slope because more and more of commodity Y is to be sacrificed for every additional unit of commodity X.
When can PPC be a straight line?
A PPC curve can be a straight line only if the marginal rate of transformation (MRT) is constant throughout the curve. A MRT can remain constant only if both the commodities are equally constant and the marginal utility derived from their production is also constant.
Is opportunity cost the slope?
In Graph 1, what is the relationship between slope and opportunity cost? [Slope is a mathematical way of expressing opportunity cost; the slope of the line over a given segment of the production possibilities frontier corresponds to the opportunity cost between those two goods.
What does a shift in PPC indicate?
The basic idea is that anything that causes economic output to increase or decrease will shift this curve. When the curve shifts outward, or to the right, that means output is increasing. When the curve shifts inward, or to the left, that means output is decreasing.
What does rightward shift in demand curve indicate?
Solution. The rightward shift of demand curve indicates the increase in demand for a good due to change in the factors other than the price of the good. These factors can be increase in the income of a consumer, increase in the total number of consumers, increase in the price of substitute goods, etc.
Does massive unemployment shifts PPC to left?
Massive unemployment will not shift the PPC curve to left. Infact, the point on PPC where the economy was producing earlier will shift below the PPC. This is because unemployment implies inefficient use of resources and this inefficient use of resources is depicted by shifting the point below the PPC.
Does unemployment affect PPC?
Unemployment means resources that could be used for production are not being used. And when some resources are not being used for production, the economy does not reach the production possibilities curve–the curve that corresponds to full employment.
What is the impact of massive unemployment on the PPC?
Massive unemployment is a situation of wastage of human resources which means there is an under utilization of resources, and in this case PPC will not shift anywhere but this point lies within the PPC.