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Economics Review Questions

In: Business and Management

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Review question – Chapter 1
Question 1 – what is meant by the term ‘opportunity cost’? what is an example of an opportunity cost of going on holiday?
The opportunity of a given action is the value of the next best alternative to that particular action. Opportunity cost of going on holiday, you would have worked at your summer job.
Question 2 – what is Karen’s opportunity cost of going to the movie?
Karen’s next best alternative is to babysit. By babysitting Karen earns $60 and also gets to keep the $19 that she would have spent going to the movie. Thus her total opportunity cost of going to the movie is $79
Question 3a – what is the definition of a PPC?
A PPC is a curve that represents all possible combination of goods that can be produced given the resources that are available. PPC represents the maximum output possibilities for two or more goods, given a set of inputs, and given that those inputs are used efficiently
Question 3b – explain how the PPC illustrates the concept of opportunity cost
The PPC demonstrates that in order to produce more of one thing, we must produce less of something else. The slope of the PPC tells us the opportunity cost of an extra unit of a good because it tells us how much less of one good can be produced in order for one more unit of the other good can be produced.
Question 3c – draw a typical PPC
Question 3d – give an example of a change that will cause the PPC to shift out for both goods and an example of a change that will cause the slope of the PPC to change
Season change would cause both apple and orange trees to produce more fruit, thus expanding the PPC outwards for both goods. A fungus that infects apple trees and cause them to produce will cause a change in the slope of the PPC. In particular, it will cause the opportunity cost of apples to increase.

Review Questions – Chapter 2
Question 1 – Should…...

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