Macroeconomics
The“perunitopportunitycost”isausefulformulathathelpsunderstandhowmuchisgivenupofone thingtogetalittlemoreofsomethingelse.It'slikemeasuringthepricepaidintermsof one itemtogain a bit more of another item. Per unit opportunity cost = ℎ ℎ Let’s go back tothemovementfrompointCtoAonthepreviousPPC:255carswere lost to gain 100 additional laptops ⇒ The per unit opportunitycostofmovingfromCtoA=255/100=2.55cars.This means that for every additional laptop produced, 2.55 cars are foregone. Shapes of the PPC The shape of the PPC is signifcant as it reflects the typeofopportunitycostincurredwhenchanging production possibilities. Opportunity cost can be constant, increasing, or decreasing.
1. ConstantOpportunityCost: Thisscenariohighlightsthatthe opportunitycostdoesnotchange asyoumovealongthePPC.Thismeansthatresourcesareeasilyadaptablebetweenproducing thetwogoods.Becauseofthisconstanttrade-off,thegraphforms astraightlinePPC ,whichis uncommon in real-world situations as this requires both goods to use the same factors of production (e.g., where two similar cars are being produced). Example: The following PPC represents an economy that produces airplanes and yachts. By calculatingtheperunitopportunitycostofmovingfromonepointtoanother,wecandeducethat theopportunitycostremainsconstant.Forexample,amovementfrompointCtoDoramovement from point D to E requires the sacrifce of 1 airplane to produce 1 additional yacht.
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