1.5.5 Business Choices

Question 1

Define ‘opportunity cost’.

Answer 1

• Opportunity cost is the loss of the next best alternative when making a decision

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

Question 2

What is a trade-off and when does it occur?

Answer 2

• A trade-off occurs when two things cannot be fully achieved

Having more of one thing may mean having less of another

Question 3

Give some examples where trade-offs may occur.

Answer 3

Product:
- Choosing to spend money upgrading an existing product may result in the loss of the next best alternative, which could be research & development on a new product

Pricing Strategy:
- If a business decides to use a competitive pricing strategy, it loses the opportunity to price skim

Market Research:
- Foregoing market research may help the business to get its product to market quicker

• However, the trade-off is that the product may not have the features/qualities desired by the market