Understanding Opportunity Cost, Economic Analysis, and Demand Dynamics

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 Understanding Opportunity Cost, Economic Analysis, and Demand Dynamics

Opportunity cost is the worth of the next best option lost by allocating time, money, or

effort to a choice. It's the cost of picking one choice over another, taking into account what you

lose from the next best option. Opportunity cost underpins economics and decision-making. If

you have $10,000 and can invest it in a stock with a 12% projected return or a bond with a 10%

expected return, the cost of picking the bond is 2%. This implies that selecting the bond means

losing 2% on your money. What I could have done with my time and money determines the

opportunity cost of this program. If I could have worked at a $20-per-hour job for the same

amount of time I spent in this class, the opportunity cost is $20 per hour. This implies I'm losing

$20 each hour by attending this class. However, attending this class may help me acquire new

skills, improve my grade, or prepare for my profession. I consider the pros and cons of each

option to make the best choice.

Positive Economics: Factual facts and observations inform objective assertions and

analysis in positive economics. It describes the economy and predicts its behavior without

expressing beliefs or values. However, normative economics incorporates subjective judgements

and value-based claims about the economy. It involves personal and ethical judgments about

what should be. Let's examine the statements: Minimum hourly pay should be $15: This remark

is normative since it suggests a minimal salary. It doesn't define minimum wage or its impacts.

The average remuneration package of 10 Fortune 500 corporations was $13.5 million: This

remark is favorable since it describes several corporations' remuneration packages. Data from

such firms can verify it. Drafts for NBA, NFL, and MLB are market solutions: This is good since

it describes professional sports drafts. Data from those sports leagues can verify it. An
Accounting Major should earn more than a History Major: This positive phrase conveys an

evidence-based expectation. Data from job markets and education results may verify it.

Demand and Quantity Demand Change:

A price change causes a shift along a demand curve, resulting in a change in quantity

required. The amount desired of a commodity increases as its price lowers, and vice versa.

Because a reduced price makes the goods more affordable, more people purchase it. A change in

one of the demand shifters shifts the demand curve. Demand-shifters are: Income: More income

means more money to purchase products and services, including the item in question. The

demand curve will right-shift. Tastes: The demand curve shifts right if consumers like an item. If

individuals prefer organic foods, the demand curve will move right. A drop in the price of one

alternative will move the demand curve for the other product to the left. The apple demand curve

will shift left if banana prices fall. Price of complementary goods: A drop in the price of one

complement will move the demand curve for the other commodity to the right. The automobile

demand curve will shift right if fuel prices drop. Expected future prices: People will purchase

more of an item today if they predict its price to rise, moving the demand curve right.

Population: Population growth shifts most goods demand curves right.

Demand quantity change: A demand curve movement represents a change in amount

requested. Demand curve is D0 in graph below. Quantity required rises from Q1 to Q2 while the

price drops from P1 to P2. This is a demand curve movement from A to B.

P

P1

P2

Q1 Q2

Demand change: A demand curve shift indicates a demand change. The graph below

shows the demand curve shifting from D0 to D1. Income growth, taste changes, or lower

replacement product prices might produce this. Demand shifts increase amount requested at

every price.

D1 D0 D2
 (D)The quantity buyers are willing to purchase at a certain price declines. (S)The supply

price is the minimal price vendors are ready to pay for a certain amount of items. C to A:

Consumer surplus—individual and overall. Individual consumer surplus refers to the net gain a

buyer makes from purchasing an item. Equal to the gap between the buyer's willingness to pay

and the paid price. In a market, total consumer surplus is the sum of individual consumer

surpluses of all purchasers of an item. (B to C) Individual or total producer surplus. Individual

producer surplus refers to the net gain a seller makes by selling an item. It equals the difference

between the obtained price and the seller's cost. In a market, total producer surplus is the sum of

individual surpluses from all suppliers of an item.

 References

Kolmar, M. (2017). Principles of microeconomics. Springer.