Definition Of Opportunity Cost In Economics
Opportunity cost is the best alternative someone gives up after making a choice. An example of this can be skipping breakfast to get some extra minutes of sleep. Rather than waking up a couple of minutes before to get breakfast and avoid starving, I decided to sleep in. Breakfast was the opportunity cost of my choice. Another example can be saving money for university. Rather than saving that money for the future, I could be using it to pay my bills now. My opportunity cost is paying my bills today. 2) Compare the difference between "Change in Demand "and” Change in Quantity demanded"(2 points).
Change in quantity demanded refers to the change in the sum or …show more content…
Once a market has shortage and Surplus, then what happens to the market price? (2 points)
Shortage occurs when the quantity demanded exceeds the quantity supplied. In other words, shortage happens when the consumers can’t buy as many products as they want for that cheap/lower price. When there is excess demand or shortage then the prices are increased. When the prices of the products are increased then the market price is also increased. This happens because the consumers start to bid up the price of the product and will continue doing so until the shortage disappears. As prices increase then shortage shrinks.
Surplus occurs when the quantity supplied exceeds the quantity demanded. In other words, surplus happens when there is an excess of product for a high price that no one is buying. To sell that product, sellers must lower the prices. When there is surplus, the sellers put their products on sale or lower their prices until the surplus is eliminated. As the price falls, new buyers enter the market and surplus is eliminated. Basically, the sellers lower their prices to eliminate the excess of quantity supplied and therefore the market price is also …show more content…
Consumers must bid up the price of the product. The bidding mechanism causes the price of the product to rise. This would result in a rise of the price of the product and a rise/increase of the equilibrium. The equilibrium price is increased. The output sales are decreased once the price is increased because some buyers will drop out since they won’t be able to afford the product. Basically, the sellers are selling less bread but at a much higher price.
5) If increase in Demand is smaller than increase in Supply, what happens to equilibrium Price and Output sales? (2 points)
In this situation, the price of the product would be decreased because there is more supply (products) but less demand. Sellers have an excess of supply and consumers are not buying the product for the original price. In this case, sellers would have to start selling their product at a lower price or on sale. The equilibrium price would be lowered along to the product price. Before lowering prices, the output sales would be lower because no one is buying the product so there is no selling. Once the prices go down more buyers would want to buy the product due to the cheaper price causing output sales to