Problem 2 What role does opportunity cost ... [FREE SOLUTION]

Chapter 20: Problem 2

What role does opportunity cost play in the theory that birthrates are likely to be higher in some countries than others?

Short Answer

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Opportunity cost plays a central role in the theory explaining birthrate differences among countries. In countries where the perceived opportunity cost of not having more children is high (due to socio-economic conditions), birthrates tend to be higher. Conversely, in societies where the opportunity cost of having many children (such as the professional sacrifices required by parents) is considered high, birthrates are usually lower.

Step by step solution

Defining Opportunity Cost

Opportunity cost in economics refers to the cost of foregoing the next best alternative when making a decision. It represents the benefits an individual, investor or business misses out when choosing one alternative over another.

Relating Opportunity Cost to Birthrates

High birthrates could be associated with high opportunity costs in some countries. This may be seen in developing countries where families might have more children as a form of 'insurance' for their later years. The opportunity cost of not having more children (for instance, having fewer children and investing more in their health and education) may be perceived as too high relative to the potential benefits. On the other hand, in more developed countries, the opportunity cost of having many children (for instance, the career sacrifices parents, especially women, might have to make) is often perceived as very high. Thus, birthrates are generally lower.

Birthrates as a function of Resource Allocation

Looking at birthrates from the perspective of resource allocation can also shed light on the role of opportunity cost. People and societies have finite resources (time, money, energy etc). Allocating these resources towards having more children means that less of these resources can be devoted towards other ends (like education, career, leisure etc). If the opportunity cost of having children (what is given up in order to have children) is viewed as being too high, then we would expect to see lower birthrates.