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Chapter 1: Q4 (page 17)

Suppose that you are given a \(100 budget at work that can be spent only on two items: staplers and pens. If staplers cost \)10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is

a. 10 pens.

b. 5 pens.

c. zero pens.

d. 4 pens.

Short Answer

Expert verified

Option (d): 4 pens

Step by step solution

01

Meaning of opportunity cost

Opportunity cost is the cost incurred on the forgone commodity by the decision-maker. In other words, it is the cost occurred to the consumer on the sacrifice of one good for another.

For example, suppose a farmer decides to cultivate rice instead of potatoes on a piece of land. In that case, the opportunity cost is the loss to the farmer for not choosing potatoes for cultivation.

02

Estimating the opportunity cost of one stapler

The price of one stapler is $10, and the price of one pen is $2.50. For each unit of the stapler, the consumer will have to sacrifice the purchase of 4 pens.Thus, the opportunity cost of one stapler is 4 pens. Hence, option (c) is correct.

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Most popular questions from this chapter

Refer to the following production possibilities table for consumer goods (automobiles) and capital goods (forklifts).

  1. Show these data graphically. Upon what specific assumptions is this production possibilities curve based?
  2. If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length?
  3. If the economy characterized by this production possibilities table and curve is producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?
  4. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?

Production Alternatives

Type of Production

A

B

C

D

E

Automobiles

0

2

4

6

8

Forklifts

30

27

21

12

0

What is 'utility', and how does it relate to purposeful behavior?

Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods in the present to invest in more goods for the future. Households in China save 40 percent of their annual incomes each year, whereas U.S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 7 percent per year in China but only about 3.0 percent per year in the United States. Use graphical analysis of 鈥榩resent goods鈥� versus 鈥榝uture goods鈥� to explain the difference between China's growth rate and the U.S. growth rate.

How does the slope of a budget line illustrate opportunity costs and trade-offs? How does a budget line illustrate scarcity and the effect of limited incomes?

Referring to the table in problem 5, suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Now, assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. Now, draw a production possibilities curve that reflects technological improvement in the production of both goods.

Production Alternatives

Type of Production

A

B

C

D

E

Automobiles

0

2

4

6

8

Forklifts

30

27

21

12

0
See all solutions

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