CHAPTER 7

THE CONCEPT OF OPPORTUNITY COST

Economics does not only measure the outlay or the spending of resources but also the value of what was
given up in order to get what one wants. Opportunity cost is the foregone value of the next best alternative.
How useful is the concept of opportunity cost?
Opportunity Cost helps a manufacturer to determine whether to produce or not. He can assess the economic
benefit of going for a production activity by comparing it with the option of not producing at all. He may invest
the same amount of money, time, and resources in another business or Opportunity.
What is opportunity cost give example?
Examples of Opportunity Cost.
Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is
the cost of the movie and the enjoyment of seeing it. The opportunity cost of taking a vacation instead of
spending the money on a new car is not getting a new car.
Who developed the concept of opportunity cost?
John Stuart Mill
Opportunity cost is the value of the next best thing you give up whenever you make a decision. It is "the loss of
potential gain from other alternatives when one alternative is chosen". The idea of an opportunity cost was first
begun by John Stuart Mill.
What is the concept of increasing opportunity cost?
The law of increasing opportunity cost is the concept that as you continue to increase production of one good,
the opportunity cost of producing that next unit increases. This comes about as you reallocate resources to
produce one good that was better suited to produce the original good.
Why is opportunity cost called real cost?
Now, the option which is eventually chosen is obviously the choice, while the other one foregone in order the
make this choice is regarded as the real cost. Now, the option which is eventually chosen is obviously the
choice, while the other one foregone in order the make this choice is regarded as the real cost.
What is importance of opportunity?
People and organizations grow and develop to the extent that they capitalize on opportunities to do so.
Opportunities are important to leaders because they're important to the people they lead. Opportunities are the
venues where people can try, test, better, and even find themselves.
How does opportunity cost affect your life?
Opportunity costs apply to many aspects of life decisions. Often, money becomes the root cause of decision-
making. If you decide to spend money on a vacation and you delay your home's remodel, then your
opportunity cost is the benefit living in a renovated home.
Why opportunity cost is the best forgone alternative?
Opportunity cost is, simply, the cost of losing something (best alternative) to get something. It is the 'best
alternative' foregone because that is the highest price (in non-monetary terms) being paid for it.
 ACTIVITY

Answer the following questions.

1. What is opportunity cost?
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2. Why opportunity cost is the best forgone alternative?
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Review and Synthesis

I. Outline your learning from this lesson.

A.

B.

C.

II- Define the terms use in this lesson.

1. Explicit cost -

2. Implicit cost –

3. Opportunity cost –

4. Consumers -
III- Formulate and raise questions regarding this lesson.

1.

2.

CHAPTER 8
FACTORS OF PRODUCTION
Production of goods and services consists of:
Land - all natural resources found in nature and not made by humans
- all materials and things available beneath or above the soil including forest, mountains, rivers,
oceans, air and sunshine
- compensation for the use of land is known as rent

Labor - any form of human effort exerted in the production of goods and services
- includes a wide range of skills, abilities, and characteristics
- reward for labor rendered is either wage or salary (amount paid per output) ( fixed amount paid for
effort exerted)
Capital – all goods used in production of goods and services made by human
- Includes building, machines, furniture and fixture used in the production process.
- Reduction of productive capacity of capital leads to depreciation yet yields what is known as interest
Entrepreneurship or entrepreneurial skills.
- human effort exerted in production but specifically characterized by the act of planning organizing,
managing evaluating and assuming the risk of doing business
- an economic good that commands price referred to as profit or loss
- (gain from human effort exerted in an economic activity)
- (cost or deficit from human effort exerted in an economic activity)
What is the most important factors of production?
Human capital is the most important factor of production because it puts together land, labour and physical
Capital and produce an output either to use for self consumption or to sell in the market.
Which is the most important natural factor of production?
All natural resources either on the surface of the earth or below the surface of the earth or above the surface of
the earth is Land. One uses the land to produces goods. It is the primary and natural factor of production.
Why land is the most important factor of production?
Land is considered the primary factor of production. Land is rich in coal, water and petroleum, which are used
for generating power. Land is required to construct factories and industries to carry out the production process.
Land is of great importance to mankind.
What are the factors of economic growth?
Six Factors of Economic Growth
1. Natural Resources
2. Physical Capital or Infrastructure
3. Population or Labor
4. Human Capital
5. Technology
6. Law
7. Poor Health & Low Levels of Education
8. Lack of Necessary Infrastructure
ACTIVITY

Define the terms used in this lesson.

1. Economic Growth

2. technology-

3. Capital –

4. Good and services-

5. Natural Resources-

6. Law-

7. Land-

8. Labor-

9. Entrepreneurship-

10. market-
 CHAPTER 9
BASIC ECONOMIC DECISION PROBLEMS
Consumption
 human have also unlimited needs and wants to satisfy
 people encounter variety of choices in what to purchase
 individuals and firms face the option of buying publicly privately or provided goods and services.

Production
 firms determine the needs, wants, and demand of consumers and decide which is most profitable
 Producers allocate resources and match technologies available for production
Distribution
 Firms face the primary question as to whether they deliver.
 supply or circulate goods from one market to another or to remain in the same area as they are
 business owners also decide on the mode of transportation they will utilize as they allocate their
products and services.
Growth over time
 populations continue to rise as well as expenses incurred to sustain human existence
 Resources are divided according to needs and wants of the growing population.

Population Society Resources

What are the solution of economic problems?

Under such economies, all economic problems are solved with the help of free price mechanism and controlled
price mechanism (economic planning). Free price mechanism operates within the private sector; hence, prices
are allowed to change as per demand and supply of goods.
 Answer the following questions.
1. How can we solve economic problems?
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2. Why economic growth is important for a country?

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 CHAPTER 10
TYPES OF ECONOMIC SYSTEM

Traditional Economy
 Group of persons or families produce goods for their own consumption
 The lead head of the group or the family decides on the different questions such as what, how, how
much and for whom are the goods to be produced
 Groups or families follows a long existing pattern of living with which they are static and are very
predictable the practice include working on different task for the group and receiving equal shares in the
output.
Command Economy
 People produce goods and services for communal consumption
 The central state of the government exist to decide on the different questions such as what, how, how
much and for whom are the goods to be produced
 Production and allocation of resources are decided by the government
 Follows by the government

Market Economy
 Market allows and provides incentives to business entities to produce goods
 Price moves competition towards efficiency and equality of products
 Production and allocation of resources are decided by the business entities and consumers

 Socialist Market
A market economy characterized by regulated economic control and central planning by the state, provided
greater social welfare and decreased business fluctuation.

 Free Market (laissez-faire)

A market economy characterized by little or no government intervention, quantities of goods determined
solely by supply and demand or market’s invisible hand

 Capitalist Market
A market economy characterized by economic freedom and efficiency, consumer choice, economic growth
and expansion resources mostly privately owned.

 Mixed Economy
Combination of privately-owed and state-owned enterprises exist in the market.
Firms and household experience sovereignty
market forces prevail yet government closely monitors economics activities.
 Define the terms used in this lesson.
1. Traditional Economy -

2. Command Economy -

3. Market Economy –

4. Socialist Market –

5. laissez-faire -

Synthesis

What have you learned from this lesson? Write your answer in the box in paragraph form.
 CHAPTER 11
BRANCHES OF ECONOMICS

The study of economics is divided in to two major branches namely microeconomics and macroeconomics

Similarities and Differences MICROECONOMICS MACROECONOMICS

Etymology Micro means small Marco means as a whole

Deals with individual decisions of units of the relationship among bread

economy economic aggregates

Central concept Market, buyers and sellers  Economic aggregates

 Aggregate household or
consumption
 Aggregate business or
investment
 policies and project of the
government or
government investment
and spending
 external foreign economic
agents or imports and
exports

Main goal Understand behavior and Understand the behavior of the

interaction consumer and economy as a whole
producer
Main factors Household and firms, supply and Consumption, investment,
demand, and price income, government.
Investment and spending,
imports and exports, money
supply, inflation, interest rate,
and employment.

What are the branches of economics?

Economic analysis is usually divided into two main branches, microeconomics and macroeconomics.
Microeconomics studies how individual people and businesses function in specific situations, while
macroeconomics studies how the entire economy of a nation, or even of the world, functions.
Ten Principles of Economics
1. People face tradeoffs.
2. The cost of something is what you give up to get it.
3. Rational people think at the margin.
4. People respond to incentives.
How people interact
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activities.
7. Government can sometimes improve market outcomes.

How the economy as a whole works.

8. A country’s standard of living depends on its ability to produce goods.
9. Prices rise when the government prints too much money.
10. Society faces a short-run tradeoff between inflation and unemployment

Answer the following question.

1. Why do we need to study the branches of economics?
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2. Why economics is important in our daily life?
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Define the terms used in this lesson.

1. Household-
2. demand-
3. supply-
4. macroeconomics-
5. microeconomics-