Discuss the importance of the concept of opportunity cost. In your discussion you are required to identify and explain:
∗ The concept of opportunity cost and why it is a fundamental concept in economics
Opportunity cost is defined as the decision made to give up the highest-valued alternative in order to engage in another activity (Garnet & O’Brien). Alternatively, opportunity cost can be defined as the highest value alternative that is given up in order to undertake a particular activity. Opportunity cost is generally defined in monetary terms, such as the government spending $550 million on upgrading the Adelaide oval rather than placing that money into the public transport system. However, opportunity cost can be shown in general terms, such as the choice to study at university rather than work full time. In simple terms, opportunity cost exists due to limited resources and unlimited wants.
∗ Why the concept of opportunity cost is important to individuals (and illustrate with an example(s))
The concept of opportunity cost is becoming increasingly important in society as more and more household incomes are becoming stretched to the limits. Opportunity cost illustrates the decisions individuals make everyday, whether it is buying a hamburger for lunch for $5.00, or packing lunch at home and saving the $5.00. When taking this into consideration, if an individual purchased a $5.00 hamburger every day for lunch for 15 years, (provided that the individual is working five days a week) the amount of money spent on hamburgers is roughly $19,500. This could lead to financial losses, such as buying a new car to get to work, or buying a new laptop for work. The concept of opportunity cost helps the individual know how to maximi...
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...n its own. Therefore, as there is a shortage in supply the suppliers will produce more and therefore the price will rise as a result.
∗ At what price will suppliers be able to sell 22,000 bushels of corn?
Supplies can sell 22,000 bushels at the price of $18 per bushel.
∗ Suppose the market price is $21 per bushel. Is there a shortage or a surplus in the market?
If the market price for bushels is $21, then there will be a surplus.
∗ What is the quantity of the shortage or surplus?
The surplus occurs due to 28,000 bushels being supplies, however, only 12,000 bushels being demanded.
∗ If the market price is $21 per bushel, what must happen to restore equilibrium in the market? Explain how this would occur.
In order for market equilibrium to restore, the price must fall. In order for this to happen, suppliers must reduce the amount of bushels they are producing.
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