1.3 - Oppotunity costs

Question 1

What are oppotunity costs?

Answer 1

The value of the next best alternative foregone

Question 2

What can be the causes of oppotunity costs?

Answer 2

Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs

There is an opportunity cost in the allocation of resources

Question 3

How can oppotunity costs be understood from different perspectives?

Answer 3

Consumers : Limited income and not known how much to save

Producers / enterprises: Must decide what goods or services they will produce how much to produce how much to invest and where to organise their resources

Workers : Skills that they will give up or utilise their skills and splitting time between work and leisure

Government: must determine how best to spend public money and how they will finance it whether to borrow or raise taxes.