Quiz 1: Introduction


Opportunity cost: The best alternative forgone in order to produce or consume something else; what you give up to get something else. If we spend a huge amount on defense then we have to lose the production other necessary goods and services. In this case opportunity cost for defense products will be production of other goods and services. We can explain it with the help of an example of two countries Saudi Arabia and Costa Rica. Saudi Arabia is spending near about 9% of its GDP on defense but Costa Rica spends nothing on the defense. But life expectancy in Saudi Arabia is 73 years whereas life expectancy in Costa Rica is 79 years. Why because Costa Rica freeze up resources that can be devoted to health care , education and other life saving measures.

Unemployment poses serious hardship on out-of-work individuals and their families and it even costs a lot to the society as a whole. If unemployment persists in a society then some resources may go unused, factories remain idle and workers are laid off and resources are not used in the most efficient manner. Therefore output and the income reduce in the society as a whole and this situation goes inside the Production Possibility Curve and further increases unemployment.

According to Production Possibility Curve, optimum output is when we fully utilize resources. Therefore in a rich nation, it is important that we fully use our resources and technology to maximize our nation's output. The level of total output as well as the types of output that we produce is important because in our society we need a number of goods and services for development and therefore both the things count equally. Yes, the distribution of this output is just as important as its total amount because income generated by the production (output) is distributed among the factors of production and which is even income and will in turn increases output. Total amount of the factors of production is always equal to the distribution of output.