1.5.5 Business Choice Flashcards

1
Q

Opportunity cost

A

can be measured as the cost of foregoing the next best alternative

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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

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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.

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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
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