Supply and Demand and Next-best Alternative
AF2601 Individual Written Report Problem Set 1
Name: WANG Yu Dobby
Student ID: 10808309D
Tutorial Day and Time: Tuesday 12:30- 13:20
TUT 007
To be completed by marker:
Q1: _____
Q2: _____
English Proficiency: _____
Report Grade: _____
In daily life, a decision maker often has to forgo something in the pursuit of a certain action due to scarcity of resources. The value that must be forgone in order to undertake the action is defined as “opportunity cost” by the economists. Besides, another common issue for an economic learner is the variable responses of market prices and quantity due to the change in demand or supply.
In this report, we will to further discuss the above issues via analyzing these two problems below:
Q(1.1) "According to the definition of opportunity cost, the more alternatives that we have given up in undertaking an action, the higher the opportunity cost." Please make a critical comment on this statement and explain your answers using examples.
The validity of this statement is uncertain. Opportunity cost is defined as the value of the next-best alternative that must be forgone in order to undertake the action. It is notable that the definition refers to the value of the next-best alternative forgone, not the total value of all possible alternatives.
Consequently, there are two distinct situations for this statement. If none of the additional alternatives are better off than the original next-best alternative, the next-best alternative will not change so that the opportunity cost does not change. In this case, the statement is false because opportunity cost will not increase with the number of alternatives available to the decision maker.
However, if at least one of the additional alternatives is better off than the original next-best alternative, the next-best alternative will definitely change so that the opportunity cost will increase which verifies the validity of the statement.
Name: WANG Yu Dobby
Student ID: 10808309D
Tutorial Day and Time: Tuesday 12:30- 13:20
TUT 007
To be completed by marker:
Q1: _____
Q2: _____
English Proficiency: _____
Report Grade: _____
In daily life, a decision maker often has to forgo something in the pursuit of a certain action due to scarcity of resources. The value that must be forgone in order to undertake the action is defined as “opportunity cost” by the economists. Besides, another common issue for an economic learner is the variable responses of market prices and quantity due to the change in demand or supply.
In this report, we will to further discuss the above issues via analyzing these two problems below:
Q(1.1) "According to the definition of opportunity cost, the more alternatives that we have given up in undertaking an action, the higher the opportunity cost." Please make a critical comment on this statement and explain your answers using examples.
The validity of this statement is uncertain. Opportunity cost is defined as the value of the next-best alternative that must be forgone in order to undertake the action. It is notable that the definition refers to the value of the next-best alternative forgone, not the total value of all possible alternatives.
Consequently, there are two distinct situations for this statement. If none of the additional alternatives are better off than the original next-best alternative, the next-best alternative will not change so that the opportunity cost does not change. In this case, the statement is false because opportunity cost will not increase with the number of alternatives available to the decision maker.
However, if at least one of the additional alternatives is better off than the original next-best alternative, the next-best alternative will definitely change so that the opportunity cost will increase which verifies the validity of the statement.