Which Statement Is An Economic Rationale For The Law Of Increasing Opportunity Cost?

Which Statement Is An Economic Rationale For The Law Of Increasing Opportunity Cost
The economic rationale for the law of increasing opportunity costs is that economic resources are not completely adaptable to alternative uses.

What is economic rationale for the law of increasing opportunity cost?

This law is based on the rationale that when the producer increases the production of one good then he has to give up more of the other good in order to produce an additional quantity of this good. This can be attributed to the fact that resources are limited and there is a trade-off.

Which of the following statements is an explanation for the law of increasing opportunity costs?

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.

What is the economic rationale behind the law of increasing opportunity cost or concavity of PPF?

The Law of Increasing Opportunity Cost – We see in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports” that, beginning at point A and producing only skis, Alpine Sports experiences higher and higher opportunity costs as it produces more snowboards.

The fact that the opportunity cost of additional snowboards increases as the firm produces more of them is a reflection of an important economic law. 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.

We have seen the law of increasing opportunity cost at work traveling from point A toward point D on the production possibilities curve in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”, The opportunity cost of each of the first 100 snowboards equals half a pair of skis; each of the next 100 snowboards has an opportunity cost of 1 pair of skis, and each of the last 100 snowboards has an opportunity cost of 2 pairs of skis.

The law also applies as the firm shifts from snowboards to skis. Suppose it begins at point D, producing 300 snowboards per month and no skis. It can shift to ski production at a relatively low cost at first. The opportunity cost of the first 200 pairs of skis is just 100 snowboards at Plant 1, a movement from point D to point C, or 0.5 snowboards per pair of skis.

We would say that Plant 1 has a comparative advantage in ski production. The next 100 pairs of skis would be produced at Plant 2, where snowboard production would fall by 100 snowboards per month. The opportunity cost of skis at Plant 2 is 1 snowboard per pair of skis.

Plant 3 would be the last plant converted to ski production. There, 50 pairs of skis could be produced per month at a cost of 100 snowboards, or an opportunity cost of 2 snowboards per pair of skis. The bowed-out production possibilities curve for Alpine Sports illustrates the law of increasing opportunity cost.

Scarcity implies that a production possibilities curve is downward sloping; the law of increasing opportunity cost implies that it will be bowed out, or concave, in shape. The bowed-out curve of Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports” becomes smoother as we include more production facilities.

  • Suppose Alpine Sports expands to 10 plants, each with a linear production possibilities curve.
  • Panel (a) of Figure 2.6 “Production Possibilities for the Economy” shows the combined curve for the expanded firm, constructed as we did in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”,

This production possibilities curve includes 10 linear segments and is almost a smooth curve. As we include more and more production units, the curve will become smoother and smoother. In an actual economy, with a tremendous number of firms and workers, it is easy to see that the production possibilities curve will be smooth.

  • We will generally draw production possibilities curves for the economy as smooth, bowed-out curves, like the one in Panel (b).
  • This production possibilities curve shows an economy that produces only skis and snowboards.
  • Notice the curve still has a bowed-out shape; it still has a negative slope.
  • Notice also that this curve has no numbers.

Economists often use models such as the production possibilities model with graphs that show the general shapes of curves but that do not include specific numbers. Figure 2.6 Production Possibilities for the Economy Which Statement Is An Economic Rationale For The Law Of Increasing Opportunity Cost As we combine the production possibilities curves for more and more units, the curve becomes smoother. It retains its negative slope and bowed-out shape. In Panel (a) we have a combined production possibilities curve for Alpine Sports, assuming that it now has 10 plants producing skis and snowboards.

Even though each of the plants has a linear curve, combining them according to comparative advantage, as we did with 3 plants in Figure 2.5 “The Combined Production Possibilities Curve for Alpine Sports”, produces what appears to be a smooth, nonlinear curve, even though it is made up of linear segments.

In drawing production possibilities curves for the economy, we shall generally assume they are smooth and “bowed out,” as in Panel (b). This curve depicts an entire economy that produces only skis and snowboards.

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What is the economic principle of opportunity cost?

The opportunity cost of any given action or decision is typically defined as the value of the forgone alternative action or decision. That is, opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. In economics, opportunity cost represents the relationship between scarcity and choice.

  • It incorporates all associated costs of a decision, both explicit and implicit.
  • Opportunity costs are a major concept in economics and the key distinction between economic costs and accounting costs.
  • Accounting costs are the monetary costs recorded on the books, whereas economic costs include accounting costs plus opportunity costs.

Indirect or non-monetary costs that are taken into consideration for calculating economic costs but not for calculating accounting costs include most notably time costs. In health care research, there exist opportunity costs of health as well, discussed more later in the context of cost effectiveness analyses.

  1. Researchers conducting cost evaluations in health care often use available accountancy data, and accountancy practices are not meant to measure opportunity costs.
  2. Therefore, insights derived from research that did not consider opportunity costs will be limited in scope and researchers may wish to acknowledge this limitation and readers should interpret results from these studies with some caution.1 However, despite opportunity costs being a fundamental concept in economics and a critically important one for understanding decision-making by individuals and organizations, there are several complexities in applying the concept of opportunity costs, which lead to few research studies that explicitly measure opportunity costs.

Health economists often disagree on how to measure opportunity costs.1 For instance, ideally, any action should be compared with all relevant actions, including doing nothing.1 The choice of comparisons included in a study can play a crucial role for identifying opportunity costs.

It is often infeasible to identify all possible alternatives in order to identify the next best alternative.2 For instance, when measuring costs of one intervention with another, as in cost effectiveness analyses, the “do nothing” option is viewed as unethical, and many studies therefore do not include it as a relevant option.

The convention is to compare interventions of interest with existing practice.1 Researchers examining opportunity costs of any resource are advised to make explicit the alternative uses of that resource they are considering. To this extent, it can help to clarify the perspective of the study, i.e.

What is the economic rationale for the law of increasing opportunity costs quizlet?

The economic rationale for the law of increasing opportunity costs is that economic resources are not completely adaptable to alternative uses. Optimal output. MB MC. Achieving the optimal output requires the expansion of a good’s output until its marginal benefit (MB) and marginal cost (MC) are equal.

What is opportunity cost and why is it important in solving the basic economic problem?

What Is Opportunity Cost? – Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked.

When the opportunity cost is increasing?

The law of increasing opportunity cost is an economic principle that describes how each time a resource is allocated, there is an underlying cost of using them for one purpose over another. When you create more and more of one good while giving up more and more of another, you have increasing opportunity costs.

Which of the following statements about opportunity cost is true?

Answer and Explanation: Of the given statements about opportunity costs, (a) III only is TRUE.I. The opportunity cost of a given action is equal to the value foregone of all feasible alternative actions.

What is the opportunity cost quizlet?

Definition.1 / 6. Opportunity Cost is when in making a decision the value of the best alternative is lost.e.g. choosing electricity over gas, the opportunity cost is what you’ve lost from not picking gas.

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What is the opportunity cost of a decision quizlet?

Opportunity cost is the value of the best alternative forgone in making any choice. Ex: If you choose to spend $20 on a potted plant, you have simultaneously chosen to give up the benefits of spending the $20 on pizzas or a paperback book or a night at the movies.

What is the definition of the economic term opportunity cost Mcq?

Opportunity cost is defined as the cost of the next best alternative foregone. It represents the sacrifices that people must make due to the scarcity of resources.

Which of the following is an example of an opportunity cost?

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 are the types of opportunity cost in economics?

Opportunity Cost: Definition and Examples Opportunity cost is a basic microeconomics concept, maybe one you learned in a long-ago and hazily recollected 8 a.m. Econ 101 lecture. If you need a refresher, opportunity cost is the benefit you miss out on when you choose to do something else. Every choice you make — from choices to career decisions to something as simple as where to eat dinner — comes with some form of opportunity cost.

  • There are a variety of ways it applies to your everyday life.
  • There are a variety of ways to apply the theories of opportunity cost to your everyday life.
  • For help making sense of how it specifically relates to investing, you may want to find a financial advisor using SmartAsset’s,
  • How Does Opportunity Cost Work? When you make a choice or a decision, you’re actually making a variety of decisions.

Not only are you choosing what to do, you’re simultaneously choosing a plethora of things not to do. When you go to McDonald’s for lunch, you’re also choosing not to go to Burger King, Wendy’s or the fanciest French restaurant in town. The opportunity cost is what you give up: the delicious burgers, chicken nuggets or escargot from the establishments you shunned.

To use a more serious example, let’s say you have the choice between taking an extra shift at your job or spending the day at home with your family. If you earn $15 per hour and it’s an eight-hour shift, you stand to make $120 for your labor that day. Let’s say you choose to stay home as originally planned.

Now you don’t make that $120, the opportunity cost. But let’s say you do take the shift. Now you’ll miss out on time with your family, also an opportunity cost. Explicit Opportunity Cost vs. Implicit Opportunity Cost The two types of opportunity costs are explicit opportunity cost and implicit opportunity cost.

  • Explicit opportunity cost has a direct monetary value.
  • For instance, if a restaurant buys $1,000 worth of ground beef, the cost is the other things that it could have purchased with that money, like chicken wings or hamburger buns.
  • Implicit opportunity cost, on the other hand, does not have a direct monetary value.

If the same restaurant takes that ground beef and makes meatloaf, the implicit opportunity cost is the hamburgers it could have made and sold with the same ground beef. You should consider both explicit and implicit opportunity costs when you are investing, building your career or running your business.

Opportunity Cost and Investing The concept of opportunity cost is especially important when you start to think about investing. Everyone has a limited amount of money to invest. Even Warren Buffett has to make decisions, and those with significantly less cash than the Oracle of Omaha have to think even harder about where they want to put those dollars.

Let’s say you decide you want to invest in the tech sector. After doing your research, you narrow your choices down to two stocks, Company A and Company B. If you invest in Company A, you miss out on the possible gains you’d get from investing in Company B.

You can figure out your exact opportunity cost using the formula for calculating opportunity cost: Opportunity cost = Potential value of option not chosen – Actual value of option chosen Let’s say you decided to invest in Company A, which nets you $1,000. Investing in Company B would have netted you $1,500.

You’d plug those numbers into the formula like so: Opportunity cost = $1,500 – $1000 = $500 Thus, the opportunity cost of this choice is $500. Another important example of opportunity cost related to personal finance arises whenever you get a, Many people deposit their paycheck directly into a, where it essentially sits stagnant.

  • While you can access it to pay for goods and services, the cash does not earn interest or grow through investment.
  • The opportunity cost here is the money you potentially could have earned if you’d invested it, whether in a mutual fund or a,
  • This is an explicit opportunity cost because you can quantify in dollars how much you could have made had you chosen to invest your paycheck.
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The Bottom Line Opportunity cost is a fairly basic principle of microeconomics. It describes what you lose when you make a decision by considering what you could have gotten if you had made a different decision. The opportunity cost of taking a job offer, for instance, is the money you could have earned if you’d taken a different job offer.

  • Explicit opportunity costs can be quantified monetarily while implicit opportunity costs cannot.
  • Consider the opportunity cost of your choices when investing, whether it’s in, bonds or something else.
  • But don’t get to the point where you become paralyzed by indecision.
  • After all, not investing at all has the greatest opportunity cost.

Investing Tips

If you need help identifying investments with the least opportunity cost for you, consider finding a financial advisor. You can use SmartAsset’s to expedite your search. You answer a few questions about your financial situation and goals. Then, we match you with up to three financial advisors in your area, all fully vetted and free of disclosures. After you talk to each advisor you get to make a decision about how to proceed. Diversification is important. Figure out how to build your portfolio with SmartAsset’s,

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What is the rationale of law of demand?

Law of demand states that there is an inverse relation between the price of a commodity and its quantity demanded, assuming all other factors affecting demand remain constant. It means that when the price of a good falls, the demand for the good rises and when price rises, the demand falls.

What was the primary purpose of the Economic Opportunity Act?

Economic Opportunity Act (EOA), federal legislation establishing a variety of social programs aimed at facilitating education, health, employment, and general welfare for impoverished Americans. It was signed into law in August 1964 by U.S. Pres. Lyndon B.

  1. Johnson as one of the landmarks of his War on Poverty and Great Society domestic programs.
  2. In his State of the Union address in January 1964, Johnson announced an “unconditional war on poverty,” and his administration introduced sweeping social welfare legislation that sought to help end poverty in the United States.

The resulting War on Poverty was part of a wider legislative program known as the Great Society, with which Johnson hoped to transform the United States into a more just and equitable country. The Economic Opportunity Act (EOA) established the Office of Economic Opportunity under the direction (1964–68) of R.

Sargent Shriver, whom Johnson had tasked with spearheading the War on Poverty. The act created the Job Corps ; modeled after the Civilian Conservation Corps (CCC) of the Great Depression era, the Job Corps was a residential education and job-training program for low-income at-risk young people that provided them with academic and vocational skills they needed to attain meaningful lasting employment.

The act also established Volunteers in Service to America (VISTA)—a domestic counterpart of the Peace Corps, the popular foreign program created by U.S. Pres. John F. Kennedy, VISTA placed volunteers throughout the country to help fight poverty and to address illiteracy, lack of quality housing, and poor health, among other issues, through work on community projects with various organizations, communities, and individuals (in 1993 it would be folded into AmeriCorps ).

Another linchpin of the EOA was the Head Start program, which was designed to help prepare children from disadvantaged families for success in public schools. Having learned that some of the difficulties encountered by disadvantaged children stemmed from the lack of opportunities for normal cognitive development during their early life, the program provided medical, dental, social service, nutritional, and psychological care for disadvantaged preschool children.

Later, Head Start spawned similar programs, including one with an in-home focus and another that targeted elementary-school students. Among the other programs funded by the EOA were the Neighborhood Youth Corps, which provided training and jobs for young people (age 16–21) from impoverished families, work-study programs, and community action programs.