Chapter 1.2, Problem 1R

To determine

To Discuss: The importance of Trade off, Opportunity Cost and Production Possibility Curve.

Explanation of Solution

Trade off occurs when activities are not up to mark. Examples:

• Trade off between studying one subject over the other specific subject
• Buying a burger for 10 dollars instead of a study guide

The opportunity cost principal has a wide application in economics. It is useful in the determination of values internally and internationally. This concept is therefore used for:

• Measuring profits
• Formation of capital budget
• Policies decision of firms

Production possibility curve is mainly used for:

• Unemployment
• Innovation in technologies
• Economy Growth (GDP)

Economics Concept Introduction

Introduction:

Trade off is occurs when, one thing is given up in order to get some other thing or when one thing increase and other thing must get decrease. Trade off can also be expressed in terms of ‘opportunity cost’.

Opportunity cost is the cost of availing one opportunity in the terms of the loss of other opportunity or it is value of factor in its next best alternative use.

Production possibilities curve are the graphical representation of all the economic resources (land, labor, capital) that are being fully utilized at its maximum level.