Scarcity, Choice, and Opportunity Cost Topic Index

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Data Connections and Additional Resources
Average Weekly Hours, Manufacturing

A business experiencing growing demand for its product or service, and thus requiring an increase in hours worked, is confronted with the choice of paying overtime to existing workers, or committing to hiring new workers. Many businesses are likely to choose paying overtime until they are certain that the increase in demand will be sustained.

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10 Year Treasury Bond Yield

Since the U.S. government is considered a risk-free borrower, the Treasury bond yield serves as a benchmark risk-free interest rate. Investors in the stock market can consider the risk-free return offered on Treasury bonds as an opportunity cost when investing in stocks. Since the return on stocks (dividends plus capital gain) is subject to unforeseen fluctuations, the return on stock market investments must equal the risk-free interest rate plus a risk premium to compensate investors for accepting the higher-risk investment.

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Civilian Unemployment Rate

The choice of accepting a job offer has an opportunity cost (the possibility of a better job), as does the choice of continuing the job search process (the wages and benefits of the foregone job offer).

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Consumer Price Index (CPI)

High rates of inflation tend to raise opportunity cost for lenders, because they are being paid back in money that has declining purchasing power. In order to assure lenders of a return above opportunity cost, interest rates will also have to rise.

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Labor Productivity

Highly productive workers usually have a proportionately high opportunity cost. If their current employer attempts to exploit them by paying wages below their opportunity cost, the workers are likely to quit and seek alternative employment.

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