Opportunity Cost 1

A student defined opportunity cost as ‘the alternative given up when a course of action is followed’.

Why is this definition inadequate?

• The ‘next best’ alternative is not stressed.

• The type of economic system is not identified.

• There is no mention of money values.

• There is no reference to finite resources and unlimited wants.

A woman playing a quiz game starts with no money, but correctly answers the question that is worth $4000. The next question is worth $10 000 but if she answers incorrectly she will leave the game with no money.

What is her opportunity cost of choosing to answer the $10000 question if her answer is incorrect?

• nothing

• $4000

• $6000

• $10 000

A government spends $100 m on employing extra teachers instead of extra nurses.

What will be the opportunity cost of this?

• $100 m

• the cost of training extra teachers

• the extra nurses

• the reduction in unemployment among teachers

A government decides to spend more on defence and therefore cannot spend as much on improving the country’s infrastructure.

What economic idea is illustrated by this decision?

• budget surplus

• monetary policy

• opportunity cost

• specialisation

Commercial companies are reclaiming marsh land to construct golf courses.

What is the opportunity cost to society?

• the expense of installing drainage

• the natural environment that is lost

• the profits of the companies

• the value of the land cleared

A charity sold tickets at $5 each. A prize of $100 was given to the owner of the winning ticket.

A student bought a ticket, but did not win.

What is the opportunity cost to the student?

• $5

• $100

• what could have been bought with the $5

• what could have been bought with the $100

What, according to the definition of opportunity cost, is sacrificed when a decision is taken?

• an identical alternative

• any possible alternative

• the least valuable alternative

• the next best alternative