Write one paragraph about how incentives, trade-offs, and opportunity costs affect people’s decisions they make in everyday life. Use examples (5 points)
Explain what causes shifts in the production possibilities curve in detail. Give examples of scenarios that would cause a shift to the left and a shift to the right in the made up situation you come up with. Use the Production Possibilities Frontier notes for help (5 points)
In everyday life, people are constantly making decisions based on incentives, trade-offs, and opportunity costs. For example, when choosing between going out to eat or cooking at home, individuals weigh the cost-benefit analysis, such as the convenience of eating out versus the savings of cooking at home. Trade-offs also come into play when deciding how to spend limited time and resources, such as choosing between spending time with family or working extra hours for overtime pay. Additionally, opportunity costs factor into decision making by considering what must be given up in order to pursue a certain course of action, like choosing to attend a concert instead of studying for an exam.
Shifts in the production possibilities curve occur when there are changes in resource availability, technology, or preferences. For instance, in a scenario where a country experiences a natural disaster that destroys farmland and decreases the availability of agricultural resources, the production possibilities curve would shift to the left as the economy is less capable of producing goods. Conversely, if there is an advancement in technology that allows for more efficient production methods, the curve would shift to the right as the economy can now produce more goods with the same resources. Overall, shifts in the production possibilities curve reflect changes in a society's ability to produce goods and services efficiently.