Question

1. The United States is considered a rich country because Americans can choose from an abundance of goods and services. How can there be scarcity in a land of abundance?

2. Explain the relationship between changes in opportunity cost and changes in behavior.

3. Discuss the opportunity costs of attending college for four years. Is college more or less costly than you thought it was? Explain.

4. Is it possible for a person to incur an opportunity cost without spending any money? Explain.

5. What do economists mean when they say that institutions matter?

Answer 1

Scarcity is present everywhere at any point of given time in simple terms it is omnipresent. Though US is a land of abundance there is always a possibility of having no access to particular good and/ or service. We can't have all the opted options at one time we forgo all but one after considering opportunity cost approach.

In simple term three is a scarcity for every one present in an economy invariant of his wealth that he can't buy it consume at least something for given point of time that depicts scarcity in a land of abundance.

Answer for 2

Opportunity cost is the difference between the value of an option opted and most valuable option forgone . Opportunity costs alter the behaviour assuming rationality if consumers hold. For an instance before time t if one option has less value than that of other option available hence rational consumer will choose latter option but due to some economic state latter option becomes more valuable than other one the same consumer will show reverse trend i.e. which violates the preference axiom called reflexivity.

Changes in opportunity cost shows changes in behaviour.

Opportunity cost for attending college is forgone opportunity of earning wages for these 4 years.For an example if consumer have not chosen to study but to earn wages then he would be nominated to unskilled labour wages as he will not have any formal skill trainings because he hasnt opted for college education and Stylised facts say that every year of college education increase the wages earned in future.Hence if we discount earned future wages after college education and wages with no college education then it will be seen that opportunity cost of not attending college is high.(There are some exceptions such as if we fund our college education with loans having exorbitant interest rate this reduces the value of having college education and decreases the opportunity cost)

Answer for 4

Yes it is seen in day to day life scenarios.Opportuntiy cost is not only about monetary gains or losses but it depicts some gains and losses due to favourable or unfavourable actions we choose. Following bad habits such as late night activities, eating junk foods, avoiding physical activities all these bad habits have higher opportunity cost as we will be sacrificing good health and hence longevity. This explains opportunity cost without introducing money into picture.