Importance Of Opportunity Cost In Economics

Question 1
Discuss the importance of the concept of opportunity cost. In your discussion you are required to identify and explain:
∗ The concept of opportunity cost and why it is a fundamental concept in economics
Opportunity cost is defined as the decision made to give up the highest-valued alternative in order to engage in another activity (Garnet & O’Brien). Alternatively, opportunity cost can be defined as the highest value alternative that is given up in order to undertake a particular activity. Opportunity cost is generally defined in monetary terms, such as the government spending $550 million on upgrading the Adelaide oval rather than placing that money into the public transport system. However, opportunity cost can be shown in general

Opportunity cost illustrates the decisions individuals make everyday, whether it is buying a hamburger for lunch for $5.00, or packing lunch at home and saving the $5.00. When taking this into consideration, if an individual purchased a $5.00 hamburger every day for lunch for 15 years, (provided that the individual is working five days a week) the amount of money spent on hamburgers is roughly $19,500. This could lead to financial losses, such as buying a new car to get to work, or buying a new laptop for work. The concept of opportunity cost helps the individual know how to maximize their satisfaction from their limited

Explain your answer
Following on from the previous answer, Scotland has the comparative advantage in producing guitars as the opportunity cost for giving up the production of motorcycles is less than Ireland. One Motorcycle One Guitar
Ireland 10 hours 2.5 hours
Scotland 9 hours 2 hours

Question 3
Refer to the Table below. The table contains information about the corn market. Use the table to answer the following questions.
∗ What are the equilibrium price and quantity of corn?
The equilibrium price for the production of corn is $15 per bushel which results in 15,000 bushels demanded and 15,000 bushels being supplied.

∗ Suppose the current price is $9 per bushel. Is there a shortage or a surplus in the market?
If the price is $9 per bushel, then there is a shortage in the market.

∗ What is the quantity of the shortage or surplus?
The shortage results in 22, 000 bushels being demanded, where only 9,000 bushels are being supplied.

∗ If the market price is $9 per bushel, what must happen to restore equilibrium in the market? Explain how this would