Which scenario best illustrates a trade-off resulting in an opportunity cost?
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A production possibilities curve in economics measures the maximum output of two goods using a fixed amount of input. The input is any combination of the four factors of production: natural resources (including land), labor, capital goods, and entrepreneurship. Show
Definition and Examples of the Production Possibilities CurveIn economics, the production possibilities curve is a visualization that demonstrates the most efficient production of a pair of goods. Each point on the curve shows how much of each good will be produced when resources shift to making more of one good and less of another. NoteThe production possibilities curve measures the trade-off between producing one good versus another.
For example, say an economy produces 20,000 oranges and 120,000 apples. On the chart, that's point B. If it wants to produce more oranges, it must produce fewer apples. On the chart, Point C shows that if it produces 45,000 oranges, it can only produce 85,000 apples. By describing this trade-off, the curve demonstrates the concept of opportunity cost. Making more of one good will cost society the opportunity of making more of the other good.  How the Production Possibilities Curve WorksThe production possibility curve portrays the cost of society's choice between two different goods. An economy that operates at the production possibility frontier, or the very edge of this curve, has the highest standard of living it can achieve, as it is producing as much as it can using its resources. If the amount produced is inside the curve, then all of the resources are not being used. On the chart above, that is point E. One possible reason for such an inefficiency could be a recession or depression. If that occurs, there is not enough demand for either good. Layoffs may occur as well, resulting in lower levels of labor being used and therefore lowered production. Other reasons for an inefficient production can be a bit more complicated. An economy will fall within the curve when it ignores its comparative advantage. For example, Florida has the ideal environment to grow oranges, and Oregon's climate is best for apples. Florida has a comparative advantage in orange production, and Oregon has one in apple production. If Florida ignored its advantage in oranges and tried to grow apples, it would create an inefficient use of resources. The U.S. economy would be operating within the curve, leading to a decrease in standard of living. At the same time, any point outside the production possibilities curve is impossible. More of both goods cannot be produced with the limited resources. On the chart above, that is point F. The Shape of the Production Possibilities CurveThe production possibility curve bows outward. The highest point on the curve is when you only produce one good, on the y-axis, and zero of the other, on the x-axis. On the chart, that is Point A, where the economy produces 140,000 apples and zero oranges. The widest point is when you produce none of the good on the y-axis, producing as much as possible of the good on the x-axis. On the chart, that is point D: The society produces zero apples and 40,000 oranges. All the points in between are a trade-off of some combination of the two goods. An economy operates more efficiently by producing that mix. The reason is that every resource is better suited to producing one good over another. Some land is better suited for apples, while other land is best for oranges. Society does best when it directs the production of each resource toward its specialty. The more specialized the resources, the more bowed-out the production possibility curve. How the Production Possibilities Curve Affects the EconomyThe curve does not tell decision-makers how much of each good the economy should produce; it only tells them how much of each good they must give up if they are to produce more of the other good. It is up to them to decide where the sweet spot is. In a market economy, the law of demand determines how much of each good to produce. In a command economy, planners decide the most efficient point on the curve. They are likely to consider how best to use labor so there is full employment. NoteAn economy's leaders always want to move the production possibilities curve outward and to the right, and they can only do so with growth. The leaders must create more demand for either or both products. Only after that occurs can more resources be used to produce greater output. Supply-side economists believe the curve can be shifted to the right by simply adding more resources. However, without demand, they will only succeed in creating underutilized resources. There can be a benefit in increasing the labor force, though. Once the unemployed are working, they will increase demand and shift the curve to the right. For it to work, they must be paid enough to create the demand that shifts the curve outward. There must also be enough unemployed to make a difference. An economy in full employment can't add more workers, no matter how much corporate taxes are cut. A decrease in resources can limit growth. If there is a shortage of one input, then more goods will not be produced, no matter how high the demand. In those situations, prices rise until demand falls to meet supply. It creates cost-push inflation. Key Takeaways
Was this page helpful? Thanks for your feedback! Tell us why! Other SubmitSources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Which scenario is the best example of an opportunity cost?For example, choosing public transportation to travel to a particular destination by foregoing the option of traveling in one's own car is a good example of opportunity cost, because you end up saving money which needs to be spent on fuel.
What is the opportunity cost of any tradeWhat is the opportunity cost? A trade-off is giving up one alternative good or service for another. The opportunity cost is what you give up.
What is the difference between a tradeThe difference between trade offs and opportunity cost is that a trade-off is all the resources that are lost when a consumer makes a choice. An opportunity cost is the most desirable opportunity given up when a consumer makes a choice.
Which of the following is an example of an opportunity cost quizlet?The cost of making a choice is that the next best alternative is forgone. This is know as opportunity cost. For example if a Government decides to make the choice of devoting more resources to the NHS then the opportunity cost is devoting those resources into the education system.
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