1.3 - opportunity cost Flashcards
Opportunity cost
1
Q
Definition of opportunity cost
A
The cost of something in terms of the lost benefit of the next best alternative given up when a choice has to be made.
2
Q
Advantages of opportunity cost
A
Awareness of lost opportunity gained
Decisions are made which offer the best value
3
Q
Disadvantages of opportunity cost
A
Takes time and slows decision making
Difficult to quantify opportunity cost
A simplified model
4
Q
Example of opportunity cost
A
A farmer decides to grow potatoes,
Opportunity cost may be not growing carrots.
5
Q
Trade off definition
A
Make a choice between objectives as cannot achieve both simultaneously
Compromising one objective to maximise another
6
Q
A
