ECO-2023 Chapter Notes - Chapter 2: Comparative Advantage, Friedrich Hayek, Opportunity Cost

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8 Dec 2016

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Opportunity cost: the highest valued alternative sacrificed in order to choose an option is called the opportunity cost of that choice, they are subjective because they depend on how the decision-maker values his or her options. Opportunity cost and the real world: failure to consider opportunity cost often leads to unwise decision making. When individuals engage in a voluntary exchange, both parties are made better off: 2. By channeling goods and resources to those who value them most, trade (cid:272)reates (cid:448)alue a(cid:374)d i(cid:374)(cid:272)reases the (cid:449)ealth (cid:272)reated (cid:271)(cid:455) a so(cid:272)iet(cid:455)"s resour(cid:272)es. Trade can create value by moving goods from those who value them less. The importance of property rights: private-property rights involve 3 things: Legal protection against invasion from other individuals who would seek to use or abuse the property without the o(cid:449)(cid:374)er"s per(cid:373)issio(cid:374) Private ownership can gain by employing their resources in ways that are beneficial to others, and they bear the opportunity cost of ignoring the wishes of others.

Related Questions

Can you solve them and tell me if youre sure 100% 100% 100%

Question 1 (1 point)

If two variables move together but are otherwise unrelated, we have

Question 1 options:

a fallacy of composition.

an econometric model.

a spurious correlation.

an efficiency problem.

evidence of a weak correlation but strong causation.

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Question 2 (1 point)

The Latin expression "ceteris paribus": is essential in ______.

Question 2 options:

collecting data.

identifying sunk costs.

evaluating theories.

recognizing scarcity.

developing spurious relationships.

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Question 3 (1 point)

Opportunity cost is best defined as

Question 3 options:

marginal cost minus marginal benefit.

the time spent on an economic activity.

the value of the best forgone alternative.

the monetary cost of an economic decision.

marginal cost plus marginal benefit.

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Question 4 (1 point)

A cost that cannot be recovered at the time a decision is being made is termed a(n)

Question 4 options:

marginal cost.

scarcity cost.

sunk cost.

average cost.

opportunity cost.

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Question 5 (1 point)

If the marginal costs of 1, 2, and 3 hours of talking on the phone are $50, $75, and $105, then the total costs are

Question 5 options:

$50, $150, and $315.

$50, $41.67, and $115.

$50, 125, and $230.

$50, $175, and $405.

impossible to calculate with information given.

Save

Question 6 (1 point)

In general, individuals should specialize in producing those goods for which they

Question 6 options:

can produce more quickly than others.

can produce less quickly than others.

have the lowest opportunity cost compared to others.

have the highest opportunity cost compared to others.

have an average opportunity cost.

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Question 7 (1 point)

The extra benefit that comes from an extra unit of activity is called the _________ of the activity.

Question 7 options:

benefit

marginal benefit

marginal cost

average benefit

reservation benefit

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Question 8 (1 point)

The marginal benefit of an activity is the

Question 8 options:

same as the total benefits of the activity.

total benefit divided by the level of the activity.

change in the activity divided by the change in benefits.

extra benefit associated with an extra unit of the activity.

total benefit divided by the change in the level of the activity.

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Question 9 (1 point)

The fundamental problem that is studied in economics is that

Question 9 options:

consumers have limited wants in the face of unlimited resources.

markets should function without government interference.

Canada is too wealthy.

consumers have unlimited wants in the face of limited resources.

there are unlimited resources.

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Question 10 (1 point)

The range of topics, or issues, that fit within the definition of economics is

Question 10 options:

limited to market activities, e.g., buying soap.

limited to individuals and firms.

extremely wide, requiring only the ideas of choice and scarcity.

limited to governments and nations.

very limited.

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Question 11 (1 point)

When economists make predictions using the framework of a given economic model, it is usually based on

Question 11 options:

personal experiences.

important relationships between particular variables.

mathematical abstractions.

political implications.

the profit-maximizing objective.

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Question 12 (1 point)

The cost of spending an evening partying instead of studying economics is

Question 12 options:

the resulting decrease in the test score in Economics.

the time spent at the party.

the score of the test.

the cost of the textbook.

university tuition.

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Question 13 (1 point)

As one progresses from a one-person economy to a large, multi-person economy, the shape of production possibilities curve changes from

Question 13 options:

downward sloping to upwards sloping.

linear to convex (bowed into the origin).

concave (bowed out from the origin) to linear.

convex (bowed into the origin) to concave (bowed out from the origin).

linear to concave (bowed out from the origin).

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Question 14 (1 point)

Which is NOT a sunk cost?

Question 14 options:

Monthly rent of $1,000 contractually specified in a one-year lease.

An insurance premium of $50 per year, paid last month.

An attorney's retainer of $50,000 per year.

A worker's wage of $15 per hour.

A non-refundable deposit for a tender.

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Question 15 (1 point)

"We should support government intervention because the market produces undesirable outcomes" is an example of

Question 15 options:

positive economics.

normative economics.

comparative economics.

negative economics.

formative economics.

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amberchimpanzee966

The opportunity cost of going to college is almost never discussed, yet it is quite high, so high that it is seriously impacting the broader American economy. For non-economists, âopportunity costâ is one of the most important concepts in economics. Because of scarcity we only have limited resources, and when we use those resources to do something like go to college, we cannot use them for other things that we also believe are desirable.

By far the most important resource we use in producing goods and services is labor or âhuman capital.â Based on what we pay owners of resources, we can say that roughly two-thirds of all production of goods and services is attributable to direct human effort â work. When kids go to college, they forego entering the labor force in a major, full-time manner. When six or seven percent of the entire American population is in college, that means a significant reduction in work effort occurs because otherwise highly productive persons in the physical prime of their lives are only lightly utilized in making things or providing services.

Today, only slightly over 59 of every 100 Americans of working age actually work, down from almost 66 in 2000. If we had the employment-population ratio of 15 years ago, we would have at least 16 million more working Americans today â an increase of over 10 percent. Our output would be probably the better part of a trillion dollars higher. The push for âcollege for allâ is one reason we have less work effort today (to be sure, the modern welfare state has also lowered work incentives a lot for other reasons).

The college for all crowd says higher education augments oneâs human capital, and we forego output today from working to bolster output tomorrow from more productive workers. And, no doubt, that is sometimes true. We have many productive engineers and accountants who gained important skills in college, for example. But is that necessarily true of all college graduates, particularly when Arum and Roksa tell us that graduating college seniors typically have only marginally better critical reasoning skills that freshman? And when over 40 percent of those entering four year colleges fail to graduate in six years? What if millions of those who do graduate take jobs similar to those without that college education? What if the debt incurred to pay for the college leads many to delay marrying, delay buying houses? There is evidence that to some extent the push for college has led to all of these unintended consequences.

The Federal Reserve Bank of New York has published great work showing that there is a very severe underemployment problem amongst college graduates, and other equally good research demonstrating what many of us have been saying for years: the student financial aid programs such as subsidized student loans, have pushed up the cost of college. Now a sister Federal Reserve Bank, namely Philadelphia, is jumping into the act.

The Philly Fed in a new study shows that high student loan debt is preventing young potential entrepreneurs from starting new businesses â they cannot afford the necessary debt. Opportunity cost again: if I borrow a lot to go to college, I cannot afford to borrow to start a business.

Enrollment in all forms of higher education today are up roughly 50 percent or seven million from what they were in 1990. What if enrollments had only risen proportionate to population growth â we would have three or four million fewer enrolled in college today. Would our nation be better or worse off? No one knows for sure, but the continued rise in the proportion of Americans with a college education has been accompanied by a sharp reduction in the rate of economic growth. I bet we would have fewer underemployed recent graduates. I bet we would have less than 17 percent delinquency rates on college loans, and far less than a trillion dollars in loan debt. I bet we would have a higher rate of labor force involvement and entrepreneurial activity among the young. And I bet we would be spending tens of billions less on higher education, and at least a little bit more on capital goods investment, highway construction, et cetera. In short, I suspect we would have been better off as a nation.

Richard Vedder directs the Center for College Affordability and Productivity, teaches at Ohio University, and is an Adjunct Scholar at the American Enterprise Institute.

Question :

This is a short article discussing the concept of opportunity cost and college. Provide your views on this topic.Do you agree/disagree with the article? Why? What are your thoughts on the current employment landscape of college graduates? Provide any insight on this topic on a specific industry, your own experience, or the experiences of people that you know who have already graduated.

magentalion418

QUESTION 1

Assume there are two basic goods produced in a nation, consumer goods and capital goods. The production possibilities graph for these two goods is bowed out from the origin. This reason for this shape of the graph is because of:

	A.	the other-things-equal assumption.
	B.	the law of increasing opportunity costs.
	C.	diminishing marginal utility.
	D.	present choices and future possibilities.

1 points

QUESTION 2

From an economic perspective, when a student decides to attend another year of college, the student has concluded that the:

	A.	marginal costs of attending college are reduced by the availability of grants and subsidies.
	B.	marginal benefits of attending college have increased because the future is brighter.
	C.	marginal benefits of attending college are greater than the marginal costs.
	D.	marginal costs of attending college have decreased to make college affordable.

1 points

QUESTION 3

A person observes that as consumer prices fall, economic growth increases. The person concludes that fall consumer prices leads to economic growth. This conclusion would be an example of:

	A.	confusing correlation with causation.
	B.	the fallacy of composition.
	C.	trade-offs among economic goals.
	D.	the other-things-equal assumption.

1 points

QUESTION 4

The problem of unlimited wants and limited income is known as

	A.	the scientific method.
	B.	unequal wealth distribution.
	C.	normative economics.
	D.	the economizing problem.

1 points

QUESTION 5

A point outside the production possibilities curve is:

	A.	unattainable without economic growth.
	B.	attainable and the economy is efficient.
	C.	unattainable without inflation.
	D.	attainable, but the economy is inefficient.

1 points

QUESTION 6

Which one of the following would be an example of loaded terminology?

	A.	market forces
	B.	tentative hypothesis
	C.	entrepreneurial functions
	D.	creeping socialism

1 points

QUESTION 7

Suppose there are two economies, Alpha and Beta, both of which have the same production possibilities curves. If Beta devotes more resources to produce investment goods than consumer goods as compared to Alpha, then in the future:

	A.	Alpha will not be able to achieve full employment.
	B.	Beta will not be able to achieve full employment.
	C.	Alpha will experience greater economic growth than Beta.
	D.	Beta will experience greater economic growth than Alpha.

1 points

QUESTION 8

Macroeconomics, as opposed to microeconomics, is concerned with

	A.	individual businesses.
	B.	new computer technology.
	C.	the stock market.
	D.	the economy as a whole.

1 points

QUESTION 9

Which one of the following is an example of a positive economic statement?

	A.	The size of the Federal government should be reduced.
	B.	Midwest states affected by drought should be given more federal disaster aid.
	C.	Education and income are highly correlated.
	D.	The minimum wage for workers should be raised to help low-income workers.

1 points

QUESTION 10

Economics is primarily concerned with

	A.	interactions between the government and market participants.
	B.	how scarce resources are used.
	C.	the production and distribution of capital goods.
	D.	how income is divided among individuals.

1 points

QUESTION 11

The production possibilities table below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy.

A B C D E

Guns 0 4 7 9 10

Butter 4 3 2 1 0

If the economy is producing at alternative C, what is the opportunity cost of producing another unit of butter?

	A.	3 units of guns.
	B.	1 units of guns.
	C.	2 units of guns.
	D.	4 units of guns.

1 points

QUESTION 12

Assume that a consumer can buy only two goods X and Y, and has an income of $120. The price of X is $10 and the price of Y is $20. If the consumer spends all of her money on X and Y, which of the following would be a possible combination:

	A.	4X and 2Y
	B.	5X and 3Y
	C.	6X and 3Y
	D.	8X and 1Y

1 points

QUESTION 13

In the production possibilities model of an economy, when there is full employment of resources

		a nation will be operating at an interior point within its production possibilities curve.
		a nation will be operating on the production possibilities curve.
		the production possibilities curve will shift outward to the right.
		the production possibilies curve will shift inward to the left.

1 points

QUESTION 14

In economics the concept that there is "no free lunch" means

	A.	scarce resources were used to produce these "free" goods so there is an opportunity cost to producing them.
	B.	consumers are irrational when they ask for a free lunch unless they can make the case that the free lunch benefits business.
	C.	the marginal cost of the "lunch" is greater than the marginal benefit.
	D.	businesses could not make a profit if they gave away free goods to consumers.

1 points

QUESTION 15

Assume that a consumer can only purchase two goods with her income. A straight-line budget constraint indicates that the opportunity cost of obtaining an additional unit of one good is:

	A.	negative.
	B.	constant.
	C.	increasing.
	D.	decreasing.

carmineferret43

ECO-2023 Chapter Notes - Chapter 2: Comparative Advantage, Friedrich Hayek, Opportunity Cost

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