Why is it important to consider the opportunity cost when making a significant purchase?

• A. Because opportunity cost is irrelevant when you have enough money to buy what you want.
• B. Because opportunity cost only affects businesses, not individual consumers.
• C. Because opportunity cost represents the value of the next best alternative forgone, helping you make more informed decisions.
• D. Because opportunity cost determines the actual price you pay for a product.

Answer: (C)

Verified step by step guidance

1. Understand the concept of opportunity cost: it is the value of the next best alternative that you give up when making a choice.
2. Recognize that when making a significant purchase, you are not just spending money but also forgoing other potential uses of that money or resources.
3. Consider that opportunity cost helps you evaluate what you sacrifice by choosing one option over another, which is crucial for making informed decisions.
4. Note that opportunity cost applies to both individuals and businesses, as both face trade-offs when allocating scarce resources.
5. Realize that opportunity cost is not the same as the actual price paid; instead, it reflects the benefits you miss out on by not choosing the next best alternative.