CHAPTER # 02

What are 3 fundamental economic

Questions?
The three fundamental questions of economics are:
1. How to produce: it talks about the techniques that should be
used to produce goods and services that are required by the
people.
2. What to produce: it talks about the things that should be
produced with the limited resources that are available in the
economy.
3. For whom to produce: it talks about the selection of the
category of people for whom the goods are to be produced.
More for the rich, less for the poor or less for the rich and more
for the poor.

What is an opportunity cost?

Opportunity cost refers to what you have to give up to buy what
you want in terms of other goods or services. When economists
use the word “cost,” we usually mean opportunity cost. The
word “cost” is commonly used in daily speech or in the news.
It is money or benefits lost by not selecting a particular option
during the decision-making process. Opportunity cost is
composed of a business's explicit and implicit costs. Opportunity
cost helps businesses understand how one decision over another
may affect profitability.
EXAMPLE:
· you spend time and money going to a movie, you cannot
spend that time at home reading a book, and you can't
spend the money on something else.

· 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.
Formula for Calculating Opportunity Cost
Opportunity Cost = FO−CO
where:
FO = foregone option (which is the best option that you didn’t
choose)
CO = Return on chosen option (chosen option)
· The alternative name of opportunity cost is Economic
cost.

What opportunity cost am i experiencing now?

The most money that i could be making if i was somewhere
else instead of giving exams here.

can opportunity cost be something other than

money?
opportunity costs are not restricted to monetary or financial
costs: the real cost of output forgone, lost time, pleasure, or
any other benefit that provides utility should also be
considered an opportunity cost.
For example, suppose you choose to go to a movie with your
friends and spend $20 on the tickets and popcorn. You could
spend that time working instead, so you include that when
calculating the opportunity cost