Introductory Microeconomics — Introduction
Scarcity, Choice and Opportunity Cost
Resources are scarce relative to wants. Scarcity creates the need to choose. Opportunity cost is the value of the next best alternative forgone when a choice is made.
Production Possibility Frontier
A PPF shows possible combinations of two goods with given resources and technology. Points on the frontier represent productive efficiency under the model’s assumptions; points inside indicate underutilisation; points outside cannot be achieved with existing resources and technology.
Positive vs Normative Economics
A positive statement can be examined using evidence. A normative statement expresses a value judgment about what ought to be.
MCQs
- Opportunity cost means:
A. total money spent B. next best alternative forgone C. accounting profit D. fixed cost
Answer: B.
Explanation: Choice means giving something up. Opportunity cost identifies the most valuable alternative sacrificed, not every alternative that was available. - A point inside a PPF generally indicates:
A. unattainable production B. productive efficiency C. underutilisation of available resources D. economic growth
Answer: C.
Explanation: With the stated resources and technology, an inside point indicates that more of at least one good could be produced without sacrificing the other, subject to the model’s assumptions.
Application
A student has three hours and must choose between studying, working part-time and leisure. Explain how opportunity cost applies and why the relevant cost is not simply the total of all alternatives.