Chapter 3: Opportunity Cost

Question 1

Opportunity cost

Answer 1

The value of the next best alternative foregone when a choice is made.

Question 2

Opportunity cost and consumers

Answer 2

Money is scarce (eg. limited to salary, pocket money, pension/savings). When a consumer chooses to buy the product, there is an opp. cost of the product they are unable to buy (eg. buying a car might mean a person doesn’t have a downpayment for a house. The house is the opp. cost of the car)

Question 3

Opportunity cost and workers

Answer 3

Time is scarce (eg. the amount of work, time spent in work, leisure time). When a worker chooses to work there is an opp. cost of the time they can use (eg. time during work at a factory can be spent on another full-time job like Mcdonald’s. The other full-time job is the opp. cost of the current job.)

Question 4

Opportunity cost and producers

Answer 4

Resources are scarce (eg. land, labour, capital). When a producer chooses to use a resource to produce a product, there is an opp. cost of the resource that can be used else where. (Eg. the natural resources used to produce a car can be used to build a house. The resources for the house are the opp. cost of the car.

Question 5

Opportunity cost and the government

Answer 5

Tax revenue is scarce (eg. limited to tax rates). When a government chooses to fund a business using its tax revenue, there is an opp. cost of the tax revenue that can be used on another enterprise (Eg. government funding KFC instead of Mcdonald’s. The funding for Mcdonald’s is an opp. cist if the funding for KFC.)

Question 6

Economic goods and free goods

Answer 6

As resources are used to produce economic goods, their production involves an opportunity cost. In contrast, no resources are used to produce free goods and so they do not involve an opportunity cost.