Which Of The Following Statements Is An Explanation For The Law Of Increasing Opportunity Costs?
- Marvin Harvey
The law of increasing opportunity costs states that: if society wants to produce more of a particular god, it must sacrifice larger and larger amounts of another good to do so.
Which of the following describes the law of increasing opportunity cost?
Producer Surplus, The supply curve and the demand curve are directly or indirectly related to th econcept of increasing opportunity cost. Hence, all these options may be considered as the correct answer. However, the supply curve directly represents the increasing opportunity cost.
- The law of increasing opportunity cost states that as the production of one good is increased, the opportunity cost of producing other goods also increases.
- This is best represented by the shape of the production possibilities curve.A.
- Producer surplus is the difference between the price that the seller receives after selling a price and the minimum reservation price of a seller.
Now, a producer or seller would not sell a product below the marginal cost of producing it. Now, the marginal cost is lower for the initial units of commodities produced, and it increases with the increase in the volume of production. This is because now, more resources are to be extracted out of their alternative uses.
So, as production increases, the marginal cost and the opportunity cost increase. This results in the producer surplus to be falling for every additional unit of output.B. The law of supply states that as the price of good increases, the quantity supplied of the commodity would also increase. This results in the supply curve to be positively sloped.
Now, from the producer’s point of view, the producers face increasing opportunity costs for every additional unit of output produced and so do they charge higher prices.C. Consumer surplus is the difference between the maximum price that the buyer is willing to pay and the price actually paid by the buyer.
The consumer surplus is maximum for the initial units of commodity and hence represents the maximum opportunity cost. The opportunity cost declines as the number of units of good consumed increases. This is not related to the idea of increasing opportunity cost.D. The law of demand states that as the price of good increases, the quantity demanded of the commodity would decrease.
Now, as the price increases, consumers face increasing opportunity costs, that is, they have to withdraw resources from other uses, in order to acquire the commodity and hence the quantity demanded falls.
Why does the law of increasing opportunity cost occur?
The law of increasing opportunity cost is important in business and economics because it describes the perils of moving entirely into nonproduction. There are constant opportunity costs since decisions will always be made about how to best allocate limited resources.
Which of the following is an explanation of opportunity cost?
Opportunity cost is an economics term that refers to the value of what you have to give up in order to choose something else.
What is the reason for the law of increasing opportunity costs quizlet?
The law of increasing opportunity costs is driven by the fact that economic resources are not completely adaptable to alternative uses. To get more of one product, resources whose productivity in another product is relatively great will be needed.
What is an example of increasing opportunity cost?
For example, there might be a trade-off between hunting for rabbits or gathering berries. As one pursues more rabbits, the opportunity cost (in terms of berries given up) increases.
What is the law of increasing opportunity costs How does that affect the curve?
The law of increasing opportunity cost holds that as an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase.
What is meant by the law of increasing cost give some examples?
Law of increasing costs Economic principle
|This article needs additional citations for, Please help by, Unsourced material may be challenged and removed. Find sources: – · · · · ( February 2009 ) ( )|
In economics, the law of increasing costs is a principle that states that to produce an increasing amount of a good a supplier must give up greater and greater amounts of another good. The best way to look at this is to review an example of an economy that only produces two things – cars and oranges.
- If all the resources of the economy are put into producing only oranges, there will not be any factors of production available to produce cars.
- So the result is an output of X number of oranges but 0 cars.
- The reverse is also true – if all the factors of production are used for the production of cars, 0 oranges will be produced.
In between these two extremes are situations where some oranges and some cars are produced. There are three assumptions that are made in this possibility. The economy is experiencing full employment (everyone who has to work has a job), the best technology is being used and production efficiency is being maximized.
So the question becomes, what is the cost of producing more oranges or cars? If the economy is at the maximum for all inputs, then the cost of each unit will be more expensive. The economy will have to incur more variable costs, such as overtime, to produce the unit. The law also applies to switching production in a maxed out economy.
Essentially, the economy is still producing more, so the law still applies. The only difference is that resources are being taken from one area and applied to another, instead of simply producing more of the same (as assumed in the first paragraph)
What does the law of increasing opportunity costs have to do with an upward sloping supply curve?
Supply Terminology When a firm supplies a good or service, then you assume 3 things:
The firm has the resource and technology to produce it. The firm profits from making it. The firm is definitely making it and selling it
The quantity supplied of a good or service is the amount that producers plan to make and sell during a time period at a specific price. Law of Supply and Supply Curve Law of Supply: the higher the price of a good, the bigger the quantity supplied. This also happens vice versa. The supply curve function is Q s Q_ = a + bP, where
P is the price of the good or service Q s Q_ is the number of quantity supplied
Note: The supply curve is the same as the marginal cost curve we’ve seen last chapter. Two reasons why the curve is upward sloping:
Increasing Opportunity Cost: The higher the price, more firms are willing to produce and sell because any higher opportunity costs can be covered by the higher price. Thus, more products are supplied. Rising Marginal Cost: the more units are produced, the higher the marginal cost of production. So firms need to make sure that the extra addition unit cost is covered by the higher price in order to make profit.
Change in Supply The supply curve can either shift rightward or leftward. Reasons why supply curves can shift:
Prices of Factors of Production: if the prices for factors of production increases, then it becomes more costly, causing producers to produce less of the supply at the price. This shifts the supply curve to the left. Prices of Related goods produced: prices of related goods which firms make influence supply.
Substitutes: Suppose good x and y are substitutes. If the firm is producing good x, and the price of good y increases, then the firm switches to good y, causing the supply of good x to decrease. Complements: Suppose good x and y are complements. Then increasing the price of good x will increase the supply of good y.
Expected future prices: If the price of a good is expected to rise in the future, then the supply of the good today decreases. This causes the supply curve to shift leftward. Number of Suppliers: The more supplies there are, the greater the supply of the good. This increases the number of supplies, which shifts the supply curve right. Technology: Advancement in technology lowers the cost of producing, which means suppliers will produce more of the product. This shifts the supply curve to the right. State of Nature: Any natural disaster that can influence the production, or damage the supply will lower the amount of supply. This decreases the amount of supply, which shifts the supply curve leftward.
What does it mean for the opportunity cost to rise?
Opportunity cost is the value of the best alternative choice when you pursue a certain action. In other words, the difference between what you have chosen to do and what you could have chosen. Increasing opportunity cost means losing out on something else at an ever-growing rate.
Which of the following statements describes opportunity cost select the best answer?
The correct answer is b. Benefits foregone by not choosing an alternative course of action.
Which of the following is an example of an opportunity cost group of answer choices?
The correct answer is Option b. It is an example of opportunity cost where money is saved instead of spending it on leisure activities such as a vacation. Opportunity cost represents a foregone or given up on making a choice.
What is one of the reasons that explain why an increase in the price of a fixed basket of goods over time tends to overstate the rise in a consumer’s true cost of living?
The substitution bias causes an inflation rate calculated using a fixed basket of goods over time to overstate the true rise in the cost of living because it does not take into account that people can substitute away from goods whose prices rise disproportionately.
Which of the following best explains what the opportunity cost of a choice is quizlet?
Which of the following descriptions best explains the meaning of opportunity cost? The cost of choosing one alternative over another.
What is an example of opportunity cost in business?
Opportunity cost examples – Every decision has trade-offs involved, not just investing. So, how does opportunity cost play out in the real world? Here are some examples to consider:
A business owner wants to add a new product to the lineup. It requires an upfront investment of $1,000 to build and market. The opportunity cost is the potential value of that money being spent elsewhere or saved for the future. A worker with a full-time job earning $50,000 per year decides to return to school to complete a master’s degree that will enable her to increase her salary. The opportunity cost of this choice is the income she won’t earn while focusing her time and energy on school in the meantime. A book lover spends $150 per month feeding her habit. If she switched from buying books to borrowing them from the library, and earned 4% interest on the money she saved, she would have $9,926.85 at the end of five years. Those savings would be the opportunity cost of continuing to buy books.
Now, take a minute to consider the decisions on the horizon in your life. Understanding the opportunity costs associated with your choices could illuminate the best path forward.
Which of the following is an illustration of the law of increasing opportunity costs quizlet?
Which of the following is an illustration of the law of increasing opportunity costs? As more cars are produced, the opportunity cost of each additional car is greater than for the preceding unit.
Which of the following best describes the law of demand the price of a good increases when the demand for the good increases?
Answer and Explanation: The correct option is a) As the price of a good increases, the quantity demanded of that good decreases. The law of demand says that everything being constant; as the price of the good increases, then there will be a decline in the quantity demanded of that good.