Macroeconomics

‭Let’s calculate opportunity cost using the following PPC:‬

‭●‬ ‭Movement‬‭from‬‭Point‬‭A‬‭to‬‭B‬ ‭:‬‭This‬‭movement‬‭represents‬‭an‬‭increase‬‭in‬‭the‬‭production‬‭of‬‭cars.‬ ‭However,‬ ‭this‬ ‭comes‬ ‭at‬ ‭a‬ ‭cost.‬ ‭Fewer‬ ‭laptops‬ ‭will‬ ‭be‬ ‭produced‬ ‭as‬ ‭more‬ ‭resources‬ ‭are‬ ‭now‬ ‭allocated to the production of cars.‬ ‭At‬ ‭point‬ ‭A,‬ ‭200‬ ‭laptops‬ ‭and‬ ‭50‬ ‭cars‬ ‭are‬ ‭produced.‬ ‭At‬ ‭point‬ ‭B,‬ ‭180‬ ‭laptops‬ ‭and‬ ‭150‬ ‭cars‬‭are‬ ‭produced.‬ ‭This‬‭means‬‭that‬‭for‬‭the‬‭production‬‭of‬‭cars‬‭to‬‭increase‬‭by‬‭100‬‭units‬‭(150‬‭minus‬‭50),‬ ‭20 units of laptops were sacrifced (200 minus 180).‬ ‭●‬ ‭Movement‬ ‭from‬ ‭Point‬ ‭C‬ ‭to‬ ‭A:‬ ‭Now‬ ‭let’s‬ ‭consider‬ ‭another‬ ‭scenario‬ ‭where‬ ‭the‬ ‭production‬ ‭of‬ ‭laptops increases instead (yes, movements on a PPC can be back and forth!)‬ ‭Moving‬‭from‬‭point‬‭C‬‭to‬‭A‬‭indicates‬‭that‬‭the‬‭economy‬‭is‬‭now‬‭allocating‬‭its‬‭resources‬‭to‬‭produce‬ ‭more laptops, which requires a decrease in the production of cars.‬ ‭At‬ ‭point‬ ‭C,‬ ‭305‬ ‭cars‬ ‭and‬ ‭100‬ ‭laptops‬ ‭are‬ ‭produced.‬ ‭At‬ ‭point‬ ‭A,‬ ‭50‬ ‭cars‬ ‭and‬ ‭200‬ ‭laptops‬‭are‬ ‭produced.‬‭This‬‭means‬‭that‬‭to‬‭achieve‬‭an‬‭increase‬‭in‬‭the‬‭production‬‭of‬‭laptops‬‭by‬‭100‬‭units,‬‭255‬ ‭cars were sacrifced.‬ ‭Therefore, the opportunity cost of moving from point A to B is 20 laptops.‬

‭Therefore, the opportunity cost of moving from point C to A is 255 cars.‬

‭Checkpoint Quiz 3:‬

‭Suppose that the economy moves from point B to C on the same PPC. What is the opportunity cost?‬

‭(Checkpoint answers are located at the end of the chapter under the review question answers.)‬

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