Economics Final Review
| A | B |
|---|---|
| The production possibilities frontier | A popular model used to illustrate the concept of opportunity cost. |
| Financial capital | The money used to buy the tools and equipment needed for production. |
Which example illustrates opportunity cost?
Examples of Opportunity Cost. Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it. At the ice cream parlor, you have to choose between rocky road and strawberry.
How is opportunity cost Illustrated?
Opportunity cost can be illustrated by using production possibility frontiers (PPFs) which provide a simple, yet powerful tool to illustrate the effects of making an economic choice. A PPF shows all the possible combinations of two goods, or two options available at one point in time.
What is the principle 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.
The Production Possibilities Curve (PPC)
The Production Possibilities Curve (PPC) is a model used to show the tradeoffs associated with allocating resources between the production of two goods. The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions.
Why is it important to evaluate trade-offs and opportunity costs?
Why is it important to evaluate trade-offs and opportunity costs when making choice? It affects consumers because they have to make a choice on what services or goods to choose. Explain how productivity affects economic growth. Increases in productivity allow firms to produce greater output for the same level of input.
