📚 Learning Guide
Opportunity Cost and PPC
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If a country operates on its production possibility curve (PPC) and decides to allocate more resources to the production of consumer goods instead of capital goods, what is the opportunity cost of this decision?

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Learning Path

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Choose the Best Answer

A

The amount of consumer goods that could have been produced

B

The reduction in capital goods production

C

The total resources available in the economy

D

The increase in overall economic efficiency

Understanding the Answer

Let's break down why this is correct

Answer

When a country operates on its production possibility curve (PPC), it shows the maximum amount of goods it can produce with its available resources. If the country decides to allocate more resources to consumer goods, like food and clothing, instead of capital goods, such as machinery and tools, it is making a trade-off. The opportunity cost of this decision is the amount of capital goods that are not produced as a result. For example, if the country shifts resources and produces 100 more units of consumer goods, it might lose the ability to produce 50 units of capital goods. Therefore, the opportunity cost is the lost capital goods that could have helped the economy grow in the future.

Detailed Explanation

The opportunity cost is what you give up when you make a choice. Other options are incorrect because This option confuses the idea of what is lost; This choice suggests that the total resources are lost, but they are still there.

Key Concepts

Economic efficiency
Resource allocation.
Topic

Opportunity Cost and PPC

Difficulty

medium level question

Cognitive Level

understand

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