Question

1. Be able to measure opportunity cost based on a situation.

Example ___

2. Be able to interpret examples of opportunity cost to determine who has a greater opportunity in a given situation.

Example ____

3. Be able to compare costs and benefits to determine optimal action in a given situation.

Example____

4. Understand how government policy can alter incentives, trade-offs, and opportunity costs.

Example____

5. Understand how "trade can make everyone better off" applies to individuals, households, firms, and nations.

Example____

Answer 1

Answer 1:

Opportunity cost of going to college can be measured in the form of salary that is forgone if joins a job rather than joining a course.

Answer 2:

In this case, opportunity cost of producing one good with another country is compared. It is assumed that there are two goods in the market. The country which has a lower opportunity cost of producing a particular good, will produce the good. This is law of comparative advantage.

Answer 3:

In this case marginal analysis is done to compare the marginal cost and marginal benefit of a particular activity. The optium allocation takes place at the point where marginal benefit and marginal cost are equal.

Answer 4:

Government policy can alter the price and quantity in a given situation which can alter incentives and opportunity costs of a particular activity. Investment credits, change in the tax rates etc are examples of such activity.