1.3 Opportunity Cost

Question 1

Opportunity cost

Answer 1

Opportunity cost is the cost of choosing between alternative uses of resources

Question 2

Choosing one use

Answer 2

_____ will always mean giving up the opportunity to use resources in another way, & the loss of goods & services they might have produced intead

Question 3

Problem of resource allocation

Answer 3

is choosing how best to use limited resources to satisfy as many needs and wants as possible and maximize economic welfare

Question 4

Economics aims

Answer 4

to find most efficient resource allocation

Question 5

Example 1: A person invests $10,000 in a stock

Answer 5

• could have earned interest in leaving $10,000 dollars in bank account instead
• Opportunity cost of decision to invest in stock is the value of the potential interest

Question 6

Example 2: A city decides to build a hospital on vacant land it owns

Answer 6

• could have built school or sports centre
• opportunity cost is the value of the benefits forgone of the next best thing which could have been done