Question

ort answers: Explain briefly. Draw a graph if helpful Why do economists represent the Production Possibility Frontier (PPF) as a concave I bowed out') curve? comer cice for roducono c e che resour way he re best suited for. Explain what economists mean when they state that the labor Market and the Capital Market demands are derived demand. The des - What do economists mean when they introduce the term opportunity cost Opportunity cost decision you make Pienso

Explain question 4 and 5.

Answer 1

As asked Q4 and 5 are answered below.

Q3 is already answered by student.

4.

Derived demand refers to the demand for factors of production or inputs to a production process, which are used to produce final goods and services in the economy (and are themselves not sold as final goods for consumption to consumers)

For e.g. wood is not purchased by consumers but is rather purchased as input good by furniture makers

Labor market and capital markets are said to have derived demand because labor and capital are not sold in consumer markets as final goods and services. Demand for labor and capital is derived form the final demand for goods and services for which they are used as factors of production.

For e.g. labor is used as an input to produce shoes. As demand for shoes will increase, producers will demand more labor to produce more shoes for selling. This means demand for labor is not determined in the market directly, but rather indirectly and is derived from the demand for final good/service they produce.

Same is the case for capital markets.

5.

Opportunity cost refers to the value of the foregone alternative, when a decision is made.

It refers to the money that could have been made or received, had the next best alternative been chosen in the decision making process.

For e.g. if a person decides to open his own coaching institute instead of working as a teacher where he could earn a salary of $4000 a month, then here $4000 will represent his opportunity cost or lost wages.

These are used to calculate economic profits from accounting profits and help consumers make an optimal decision.

Economic profit = Accounting profit – Opportunity cost