Multiple Choice
When studying finance or economics, the cost of a decision is also known as a(n):
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0. Basic Principles of Economics
Scarcity and Choice
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Gomer decides to spend an hour playing basketball rather than studying. His opportunity cost is:
A
the money he spent on basketball equipment
B
the value of the studying he gave up to play basketball
C
the enjoyment he gets from playing basketball
D
the physical effort required to play basketball
Verified step by step guidance1
Understand the concept of opportunity cost: it is the value of the next best alternative that is forgone when a choice is made.
Identify the alternatives Gomer faces: spending an hour playing basketball or spending that hour studying.
Recognize that the opportunity cost of playing basketball is what Gomer gives up by not studying during that hour.
Note that the money spent on basketball equipment is a sunk cost and not part of the opportunity cost of the time spent now.
Conclude that the opportunity cost is the value or benefit Gomer would have gained from studying during that hour.
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