1.5.5 Business Choice Flashcards
1
Q
Opportunity cost
A
can be measured as the cost of foregoing the next best alternative
2
Q
What is the problem with opportunity cost?
A
• Land, labour, capital and enterprise
are limited resources
• However our wants are unlimited
• This causes scarcity
• As business people we need to decide how best to use those scarce resources, we make choices
• When making important decisions in business, the cost of not selecting an alternative is an opportunity cost
3
Q
Trade-off
A
• A trade-off is when less of one is exchanged for more of another. It is also known as a compromise.
4
Q
Trade-off example
A
- In business to achieve two things may not be possible, as there is only so much capital and only so much of other resources.
- It may mean that the business has to complete less of one thing e.g. marketing in order to do more of something else e.g. new machinery for production
- When there are choices, a compromise must be made and in business this is called a trade-off