Scarcity, choice and opportunity cost: Practice Questions

A construction company is deciding whether to use a team of manual labourers or an automated crane to build a high-rise apartment block. Which basic economic question is this firm primarily addressing?

The existence of scarcity forces every economic system to answer three fundamental questions regarding resource allocation. These questions are:

An economy is currently producing at a point inside its Production Possibility Curve (PPC). If the economy moves to a point on the PPC boundary by utilizing its previously unemployed resources, what is the opportunity cost of increasing the production of both goods?

The fundamental economic problem that faces all societies is reflected in which statement?

A specialized worker can produce either \( 4 \) units of Good X or \( 12 \) units of Good Y in a single hour. If the worker is currently producing only Good Y, what is the opportunity cost of producing one unit of Good X?

State the three basic questions of resource allocation that any economic system must answer due to the presence of scarcity.

Outline how the concept of opportunity cost applies to a government making a choice between increasing funding for healthcare or national defence.

Critically assess the statement that if an economy is operating inefficiently (inside its Production Possibility Curve), there is zero opportunity cost associated with increasing the output of one good.

An individual has a limited amount of leisure time and must choose between three activities: attending a professional development seminar, going to the gym, or visiting a museum. The individual ranks the seminar as their first choice and the gym as their second choice.

(a) Define the term opportunity cost and explain why it is an inevitable consequence of the fundamental economic problem. (2)

(b) Identify the opportunity cost of this individual choosing to attend the professional development seminar. (1)

(c) Explain why the museum visit is not considered part of the opportunity cost in this specific scenario. (1)

The Production Possibility Curve (PPC) is a useful model for illustrating the concepts of scarcity, choice, and opportunity cost for an economy producing two goods, X and Y.

(a) Using a clearly labelled PPC diagram, illustrate and explain the concepts of productive efficiency and unemployment of resources in relation to positions on and within the curve, respectively.

(b) Explain why a typical PPC is usually concave (bowed outwards) to the origin, relating this shape specifically to the principle of increasing opportunity cost.