Reference no: EM132845266

Opportunity Cost

Every student must decide how much time they devote to their studies.A key concept in economics is opportunity cost. Opportunity cost is what is lost when you make a choice.If you choose to work at your job, you lose out on study time.If you choose to study, you lose out on the money you would have made by working.

Assume you are pursuing a bachelor's degree and you have 40 hours to divide between work and school in a week.You choose the amount of time you spend on each based on the classes you take and the hours you request at work.The degree will take you 3 years to complete if you dedicate 40 hours a week and do not take summers off.Obviously, if you devote no time to school, you never get your degree.

1. Use the chart below to draw the Production Possibilities Frontier with work time on the Y axis and school time on the X axis.

2. You have been going to school full time for two quarters.In the third quarter, you donot receive as much loan money as you anticipate and need.You decide to work 20 hours a week to make up the difference and take fewer classes.What is your opportunity cost?Make sure to include how this change will factor into the length of time it will take you to finish your degree.

3. You have been working fulltime but think you would like to earn more money per hour in the future.You decide to take one class to see how you like it.In order to do so, you have to reduce your work hours to 30 hours per week.What is your opportunity cost in terms of both time and money if you make $10 per hour? What about if you make $20 per hour?

4. Last quarter was very stressful because you had difficult classes.You decided to continue to work 10 hours a week and take 3 classes instead of 4, which results in only spending 20 hours a week on school.

a. Where are you producing relative to the Production Possibilities Frontier? (On, Below, or Above)

b. If the goal in economics is to be efficient in your allocation of scarce resources, in this case your time, are you operating at an efficient point?

c. What would you adjust in the future with respect to your hours at your job or the number of classes you take?

5. You have been going to school and working 10 hours a week.The school offers you a scholarship worth $1,500 per quarter because of your excellent performance.In order to get the scholarship, you have to go to school full time, which means you would have to quit your job.
a. What is your opportunity cost if you make $10 per hour? (Answer in terms of both time and money.)

b. If you get paid $10 an hour and a quarter lasts 11 weeks what would you choose? Why?

c. Your work offers you $15 an hour in order to prevent you from quitting. What would you choose? Why?

6. Think about your own life.Maybe you are willing to spend 50 or 60 hours a week between school and work.Maybe you take care of young children and have a lot of home life responsibilities and you only spend 20 hours between school and work.Draw your own personal Production Possibilities Frontier(PPF)for time spent doing school and work.Remember to plot out multiple possible combinations and then draw a line to connect them. Explain where you operate on your PPF and why.What are some of the opportunity costs you have toweigh to determine where you will operate along your personal PPF curve?