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Opportunity Cost
Q 1:
An opportunity cost refers to the benefits lost by selecting one course of action over another. One must forego the earnings or profits offered by the rejected alternative in order to undertake the selected alternative. On the other hand, an accounting cost refers to the costs involving cash payments by a business to other businesses or people during the production of a product (Bade & Parkin, 2015).
Q 2:
The principle of opportunity cost applies to various aspects of my life. About two weeks ago, I had to choose between buying an economics textbook and a pair of shoes. The price for each item was about $30. I consider the long-term effects of each alternative. While a trendy pair of shoes would make me noticeable and attractive in the short-term, it would wear out quickly and need a replacement. On the other hand, a textbook would help me to prepare and pass my exams. Good grades would give me opportunities for academic and career success, which would enhance my financial growth and allow me to buy many pairs of shoes. Therefore, I decided to buy the economics textbook after concluding that passing my exams was more important than being stylish.
Q 3:
I implicitly weighed the marginal benefit and marginal cost before deciding the item to buy. I reasoned that I could stay without buying new shoes because I already had several pairs of shoes. On the other hand, I did not have any textbook that could help me to pass my course. The analysis of production possibilities curve (PPC) helps in determining the effects of an economic choice considering the available alternatives at a point in time.
Q 4:
The PPC analysis allows us to shift the available resources and determine the earnings that we can derive from various production points involving multiple resources (Tucker, 2016). We can use the PPC analysis to compare and contrast our economic choices to determine the combination of choice offering the best opportunities for growth.
