Principles of Opportunity Cost

Question 2

a) Opportunity cost applies. There is an opportunity cost in the decision to use the $30,000 dollars to purchase the franchise. That $30,000 could have kept being saved or could have been used to make a different purchase. The decision to work part-time and reduce her income by $25,000 will also have an opportunity cost. She could have continued working and not reduced her income.

b) Disagree somewhat, fishing quotas and systems limit the amount that commercial vessels can harvest from the sea and its different areas. Fish are not an unlimited resource to commercial vessels and there is a cost incurred in determining how much is available to them. Fishing done by the general public also has quotas but dows not cost money. Fish are a free resource to some extent because it seems unforeseeable that we would run out of fish, and yet the quotas and systems in place aim at preventing this and thus implicitly recognise the fish as being limited.

c) Agree overall. Pursuit of private gain in a free market should push both production and consumption to a level of equilibrium. In order to maximise private gain resources will be used in the most efficient way to maximise their potential yields.

d) 1) Theoretical construction that represents reality. (demand of a good or service)

2) Range of variable. (Curve i.e. possible values of demand)

3) Logical and quantitative relationship between variables (Effect of variables on demand value)

4) Price, Quantity, Good or Service, Range of variables, value of demand

5) Qualitative element (i.e. how well the model works on actual reality)

e) (i)

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Assumptions:

Resources available to produce these goods and services remain unchanged while the model is constructed.

All resources are fully employed and all resources are used in the most efficient way.

State of technology remains unchanged while constructing the model.

(ii) 488 additional cricket bats if we...