At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.

At vero eos et accusamus et iusto odio dignissimos ducimus qui blanditiis praesentium voluptatum deleniti atque corrupti quos dolores et quas molestias excepturi sint occaecati cupiditate non provident, similique sunt in culpa qui officia deserunt mollitia animi, id est laborum et dolorum fuga.
Et harum quidem rerum facilis est et expedita distinctio. Nam libero tempore, cum soluta nobis est eligendi optio cumque nihil impedit quo minus id quod maxime placeat facere possimus, omnis voluptas assumenda est, omnis dolor repellendus.
Itaque earum rerum hic tenetur a sapiente delectus, ut aut reiciendis voluptatibus maiores alias consequatur aut perferendis doloribus asperiores repellat.

Get your free account and access expert answers to this and thousands of other questions

anonymous

|dw:1347597380071:dw|
if the slope is, say, \[\frac{ -7bread }{ 6 milk }\], how is that an opportunity cost? and what is it an opportunity cost of?

anonymous

|dw:1347674814325:dw|The slope of the line of y = mx + b determines the opportunity cost or trade off. In other words, slope (as denoted by m) is called opportunity cost by economists in this simple case. For now, let x = milk and y = bread.
If we were to start at the top left on the y axis, then y = 10 and x = 0 (I've chosen an arbitrary number). Let's also assume the slope (opportunity cost) m = 2. This means that for every unit of y that we give up, we gain 2 units of good x. This is an opportunity cost of 1:2 because we are giving up 2 bread loaves to gain 1 milk carton. To get 2 milk cartons we need to give up 4 bread loaves.
The opportunity cost involved here is the fact that we have to "forfeit" our current holding of bread in order to gain a non zero amount of milk. Think of it as two countries - our country has to trade some bread for some milk and in essence our people will have 8 bread loaves left and have 1 milk carton. We lost 2 bread loaves to gain 1 milk carton.
If we assume that both a bread and a milk carton have the same value (or utility in economic speak) to our citizens, then we have essentially lost. However, if each unit of bread still has a value of 1, but now instead each milk has a value of 3, then after we have traded, our net or total value (utility) of the 8 bread loaves and 1 milk cartons will be 11 "utility". Remember, that before trading we had only 10 bread loaves and 0 milk cartons for a combined utility of 10.