Opportunity Cost Implies

Question: Describe about the Opportunity Cost Implies ? Answer: 1: The meaning of opportunity cost implies the way the alternative cost is forgone for the purpose of any other thing. It is basically the benefits that one receives from pursuing any other action. The opportunity cost is linked with the economic decisions. Opportunity cost is always considered when we think of personal finances. There is a need for evaluation of the product that is forgone for getting any other product. This is done so that they can pay by maintaining the same amount. The choices that are made depend on the opportunity cost of the alternative and the product. Examples: A student does not watch television so that he can get more marks in the exam. The opportunity cost is the cost of experiencing the television shows. If there are two flavours of ice cream in the parlour say mango and vanilla. If a child chooses mango then the opportunity cost is enjoyment of vanilla. 2: By own price elasticity of demand we mean the measurement relationship of the changes in the quantity demanded of a good to the changes in the price of that good. The price sensitivity is reflected in the price elasticity of demand. PED in the diagram is the price elasticity of demand. The measurement is used by many organisations for managing the policies of price setting. When the owner of a company sets optimum price policy then he can gain a huge profit. Example of inferior goods: Cheap Cars: We have seen in the earlier years that the income of the people was not that high and they could afford only required things to satisfy their wants. With very low income the transport need was satisfied by the purchase of cheap cars as they cannot afford the expensive cars. Low quality Coffee: When the income of a person is low then he is likely to purchase a regular quality coffee packet rather than a packets of coffee beans from Starbucks. 5:The expenditure multiplier and the government tax multiplier has a common factor both are associated with the output generation of the economy and the fiscal policy actions. There are still some differences between them By tax multiplier we mean that what amount the consumer is likely to spend when the government lowers the taxes. A tax cut has shown that the consumer increases their spending and their income that is disposable is also increased The expenditure multiplier means the government spending and the effect of it in the economy. When there is expenditure from the side of the government, then there is flow of money in the economy and the consumers are seen to spend as well as save. The more effective multiplier is the expenditure rather than the tax. The main reason for this is the fluctuations in the decrease and increase in the expenditure by the government creates more effect on the nation so expenditure multiplier gets more effective. 6: The affect in the supply and demand of the currency is due to certain factors and they are as follows: Consumer Purchases:when there is any occasion the consumers are seen they spend more. This because they need to do some extra purchases during this time. Stocks and bonds are also converted to liquid form of money. This means there is more demand for money. Precautionary Motives: People might need money for meeting the unforeseen emergencies that is likely to emerge in the near future. This will also create demand for more currency by the individuals. The policies that are taken up by the central authority of the country are likely to affect the supply of money. By international trade we mean the trade between two countries. An example can be shown that suggest the effect of currency on international trade. Suppose there is a shop keeper who sells retail products but he is willing to purchase some commodity from a Chinese firm. Dollars are not accepted by the Chinese firm. The American firm goes to the exchange market to convert the dollars to Chinese currency. As the values of dollars are more so the imports get cheaper. The imports increases and so is the supply and demand. 7: A situation of unemployment is likely to arise when individual have no work or is looking out for one. The percentage of unemployment is likely to affect the prosperity of the economy. Unemployment can only be improved through investment by the government. Structural unemployment is a critical factor for the economy as this situation is likely to aggravate if it persists for a longer time. Example: The US manufacturing industry has fallen so many people has lost employment and the skills for information industry has increased. The people with manufacturing skills are likely to move out of the country. The employment of artisans was lost when the handloom was replaced by machines. The skilled labours got employe 8: The factors that are involved in the increase of the housing process are: Inflation effect : When there is inflation the products in the market has a high cost so the prices of housing is also seen to rise tors: the prices influence demand and supply. When there is high inflation then housing supply will cause a fall in the prices of housing. 9: During the time of inflation there is a fall in the currency value so the people are to get quantity that was same at a higher price. The rates of exchange have a affect on the value of currency. When there is a rise in the rate of exchange the prices of the imported goods is likely to rise and the prices of domestic products fall.