1.3 Opportunity cost

In 2019, China's economic growth rate was 6.1% and Chinese households increased their spending. More Chinese people attended sports events and the earnings of top sportspeople increased. China exported more despite a rise in tariffs on some of its products. For example, the US imposed higher tariffs on the imports of Chinese tea and coffee.

a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. [2]

The economic problem results in choices and opportunity cost. People have to decide what job to do and where to live. In recent years Australia has recruited teachers from a number of countries including Canada, the UK and the US. Most of these teachers specialise in a single subject.

a) Define opportunity cost. [2]

Washington State is the state which grows the most apples in the US. In 2019, apple production increased in Washington State but the market was in disequilibrium. Apple farming is a labour intensive industry because apples are picked by hand. The market for apples in the US is competitive.

c) Explain opportunity cost and how it can influence a farmer's decision to grow apples. [4]

Consumers in Uruguay are eating more processed foods. Factors of production, including enterprise, have responded to this change. Firms in the processed food industry have become more capital-intensive. All of Uruguay's industries were affected by the rise in its inflation rate, from 6.2% in 2017 to 7.7% in 2018.

c) Explain the influence of opportunity cost on consumers' decisions. [4]

India has experienced a relatively high economic growth rate in recent years. This growth has been driven by increases in government spending and exports, including exports of textiles. India's unemployment rate has, however, increased. The government is concerned that trying to reduce unemployment may increase India's inflation rate.

b) Explain the possible opportunity cost to India of exporting more textiles. [4]

There is a smaller proportion of large firms in Africa than in Asia. The two African countries with the largest firms are Nigeria and South Africa. These two countries' firms have more capital goods than most other African countries' firms. Firms in South Africa produce a range of products including gold and petrochemicals. In recent years, a number of African firms have developed into multinational companies (MNCs), producing mainly in other African countries.

a) Define a capital good. [2]

The main industries in the Seychelles, an island country in the Indian ocean, are tourism and fishing. The price elasticity of supply of fish is affected by the relatively short time that fish can be stored. Economic goods and free goods play a role in both fishing and tourism. With rises in the skills of workers and an increase in enterprise, GDP per head has increased by more than seven times over the last fifty years.

b) Explain how opportunity cost is different for economic goods and free goods. [4]

Swaziland is a small African country where six in ten people live in poverty and most firms are small and use little capital equipment. In October 2015 it opened a new airport. Some economists suggest that the building of the airport involved a high opportunity cost and caused a range of external costs. The building of the airport is part of the government's plan to turn the country from a developing into a developed country.

a) What may be the opportunity cost of building an airport? [2]