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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