Opportunity Cost, Demand and Supply

Opportunity Cost, Demand and Supply 1
OPPORTUNITY COSTS, DEMAND, SUPPLY ELASTICITY, AND PROFITS
By Student’s Name
Course
Tutor
University Affiliation
City
Date

Opportunity Cost, Demand and Supply 2

Opportunity Cost, Demand and Supply 3
Opportunity Costs, Demand, Supply Elasticity, and Profits
Question 1
Opportunity cost and illustration
Opportunity cost is the highest value of an alternative that a consumer must sacrifice to
satisfy their wants or obtain something (Krugman & Wells, 2013). Faced with options spending
100 RM on purchasing exercise books and pens, a student has to give up some pens for an
exercise book or some exercise books for a pen if an exercise book costs 20 RM while a pen
goes at 10 RM. The combinations of what the student can buy are shown in the diagram below.
0 2 4 6 8 10 12
0
1
2
3
4
5
6
E
E
D
C
B
A
Pens
Exercise books
As can be seen in the graph, the student at point C can purchase 3 exercise books and
four pens. However, if the student wishes to have six pens, they have to give up 1 exercise
book to buy two extra pens at point D. Therefore, the opportunity cost of an exercise book is the
cost of buying two pens.

Opportunity Cost, Demand and Supply 4
Question 2
a. The decrease in wages on demand for beef
When the average income of the consumers decreases, their purchasing power
decreases as they will have less disposable income. Assuming beef was a normal good,
a decrease in average wages of consumers will result in a decline in the demand of the
beef assuming that considering beef was a normal good. A leftward shift in the demand
curve is used to demonstrate the effects.
b. Access to quality fast-maturing cattle
When farmers have improved technology in production (access to quality cattle
that mature quickly) getting cattle to the market soon, the number of cows slaughtered in
a given period increases. Thus, the quantity of beef supplied to the market is likely to
increase ceteris paribus. The effect of such a dynamic is demonstrated by a shift in the
supply curve as shown below.