Understanding Opportunity Cost: Key Concepts & Examples
School
Cambrian College**We aren't endorsed by this school
Course
BUINESS MACROECONO
Subject
Economics
Date
Dec 10, 2024
Pages
3
Uploaded by CountPencil15823
Each section below shows the number of Marks each question is worth. Ensure you provide enough detail to substantiate each mark.Note: You may use another program to draw your graph OR draw by hand and cut and paste an image into your word document.Answer the following questions within a word document and upload onto Moodle.1. Opportunity Cost (15 Marks)i) Define Opportunity Cost. Give an example discussed in class. (5 Marks)ii) Provide 5 examples of opportunity cost in YOUR life and detail around the trade-offs associated. (10 Marks)2. Benefits, Costs and Substitutes (5 Marks)i) What is the difference between demand and preference? Give an example of each. (3 Marks)ii) Draw a demand curve with quantity and price axis (2 Marks)Answers: -1. Opportunity Costi) Define Opportunity Cost. Give an example discussed in class. (5 Marks)Ans: - opportunity cost — The cost of the best alternative given up.OrFor a smart choice, the value of what you get must be greater than value of what you give up.For Example: - The opportunity cost of doing a Full-time job after education is more than a part-time job during education because one can earn more money in a few months in a full-time job as compared to what you get during the whole part-time job period.
ii) Provide 5 examples of opportunity cost in YOUR life and detail around the trade-offs associated.Ans: -1.Restaurant vs. Fast food:There is a price for dining at a fine dining establishment instead of a quick food joint. The cash saved at the fast-food establishment is known asthe opportunity cost.2.Investment: With $120,000 to invest, an investor has to decide between mutual funds and stocks. The opportunity cost is the 3% difference if they pick for stock and it returns 10%, while the mutual fund would have earned 7%.3.Budget: - Families are limited in their spending on fun things, so they have to decide between a trip and a new TV. Instead of going on holiday, they could have enjoyed watching the new TV. This is called the opportunity cost.4Infrastructure vs health care: - If the government builds new roads and bridges, that money cannot be used for other spending plans, like schooling and health care. because infrastructure gave more returns than the health sector, so theopportunity cost of spending on infrastructure is more than the health sector.5 Walmart vs. Costco: - Buying groceries at Costco instead of Walmart is affordable. On a yearly basis, it helps save money on groceries. Comparing Costco to Walmart, Costco offers cheaper goods.2. Benefits, Costs and Substitutes i) What is the difference between demand and preference? Give an example of each. DemandPreferenceMeaningDemand refers to the willingness and ability to purchase a good or serviceat a given priceA preference is a personalinclination or liking for one thing over another, based on individual tastes, values or opinions.ExampleCustomers buy normal milk for daily consumption.Mark buy chocolate milk because he don’t like planemilk.
ii) Draw a demand curve with quantity and price axis