Opportunity Cost 1.3

Question 1

Opportunity Cost 1.3

What is Opportunity Cost of choice?

Answer 1

The opportunity cost of choice is the value of the next best alternative forgone

The scarcity of resources gives rise to opportunity cost

Question 2

Opportunity Cost 1.3

Give Examples of opportunity cost
(better understanding)

better understanding of what opportnity cost is

Answer 2

• If you only have £1 to buy either chocolate bar or crisps. The scarcity of the resource (the money) means a choice must be made between the products. The opportunity cost of choosing the crisps is the chocolate bar.
• If a car is bought for £15,000 and after 5 years the value depreciates by £5,000, the opportunity cost of keeping the car is £5,000 (which could have been gained by selling the car), regardless of the starting price.

Question 3

Opportunity Cost 1.3

Why would opportnity cost be important to economic agents?

Answer 3

• Opportunity Cost would be important to economics agents such as consumers, producers and goverments.
• Producers might have to choose between hiring extra staff and investing in a new machine
• Government might have to choose between spending more on the NHS or Education
• They cannot do both due to finite resources, so choice has to be made for where the resources are best spent

better understanding of Opportunity Cost