EC120 Study Guide - Midterm Guide: Sunk Costs, Opportunity Cost, Snob

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13 Oct 2018

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EC120 Full Course Notes

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Scarcity the study of the use of scarce resources to satisfy unlimited human wants. This includes resources with alternative uses (ex: food, time) implies that choices must be made and making choices implies the existence of costs. Opportunity cost: the value of the next best alternative that is forgone when one alternative is chosen, that is the cost measured in terms of other goods, and services that could have been obtained instead. Example: resources that could have produced 20km of road are best used to produce one hospital the opportunity cost of a hospital is 20km road or the opportunity cost of 20km road is one hospital. Production possibilities boundary: a curve showing which alternative combinations of output can be attained if all available resources are used efficiently (fully employed); it is the boundary between attainable and unattainable output combinations. Resource allocation: the allocation of an economy"s scarce resources among alternative uses.

Related Questions

6. Given that resources are scarce:

A. A "free lunch" is possible, but only for a limited number of people.

B. Poor countries must make choices, but rich countries do not have to make choices.

C. Opportunity costs are experienced whenever choices are made.

D. Some choices involve opportunity costs while other choices do not

7. The opportunity cost of playing tennis with your friend is:

A. Negative since its good exercise

B. Zero since you already own the tennis racket and play on a public court

C. The next-best alternative use of your time that is forgone.

D. The cost of the tennis lessons you took last year.

8. The concept of opportunity cost would become irrelevant if:

A. The market mechanism functioned to allocate resources.

B. The government allocated resources.

C. The production possibilities curve bowed outward.

D. Resources were no longer scarce.

9. If resources are limited:

A. People will rush to buy more goods than they would otherwise.

B. Businesses will sell more products than they would otherwise.

C. Choices that involve tradeoffs must be made.

D. All individuals are deprived of basic necessities.

10. Which of the following is true about the factors of production?

A. The factors of production as well as technology determine the physical limits to production

B. Rich countries have an unlimited quantity of factors.

C. The factors include natural resources but not skilled labor.

D. Some factors are scarce but other factors are not.

amethystraven1

1. Which of the following best describes the concept of scarcity?

a. Resources are unlimited but there is a scarcity of uses for them.

b. Resources are scarce when compared to the demand for them.

c. There is a scarcity of funding for resource conservation.

d. Resources and resource needs are equally scarce.

2. Which of the following would not be considered scarce?

a. Corn husks used to produce biomass fuel.

b. Corn husks in a landfill.

c. Corn husks used to feed hogs.

d. None of the above would be considered scarce.

3. Which of the following best describes the opportunity cost?

a. The value of the alternative selected.

b. The value of all alternatives not selected.

c. The difference between the alternative selected and the next best alternative.

d. The value of the next best alternative not selected.

4. Which of the following best describes the opportunity cost of one year of college?

a. The dollar value of tuition, books, room and board, and all associated explicit expenses, but not the interest that could have been earned on that sum.

b. The dollar value of tuition, books, room and board, all associated explicit expenses, and the interest that could have been earned on that sum but not the income that could have been earned over that time period.

c. The dollar value of tuition, books, room and board, all associated explicit expenses, the interest that could have been earned on that sum, and income that could have been earned over that time period, but not the cost of everyday items such as food, clothing, and toothpaste.

d. The dollar value of tuition, books, room and board, all associated explicit expenses, the interest that could have been earned on that sum, and income that could have been earned over that time period, and the cost of everyday items such as food, clothing, and toothpaste.

5. Which of the following can be a valid goal for a typical firm? (Check all that apply)

a. Maximizing profits.

b. Improving its public image.

c. Increasing employee morale.

d. Increasing shareholder wealth.

coralworm632

One often-used definition of the term opportunity cost is that it is something that is given up when a choice is made. An example would be the money from working full-time given up by going to school. I suggest using the definition that opportunity cost is in terms of the foregone benefits of the next best alternative that could have been chosen. If the choice is for going to school instead of working full-time, then the opportunity cost would be all the benefits you would enjoy from working full-time in addition to the income you would earn. Using examples from your experiences and what you know, in what manners does the suggested change in definitions offer advantages in evaluating potential outcomes of choices either you or society have to make? How does this second opportunity cost definition help you make better decisions?

EC120 Study Guide - Midterm Guide: Sunk Costs, Opportunity Cost, Snob

EC120 Full Course Notes

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