Which example best illustrates the concept of opportunity cost in a situation of scarcity and choice?

• A. A firm buys a machine for \$10,000, so the opportunity cost of the machine is \$10,000.
• B. A store lowers the price of coffee, causing the quantity demanded of coffee to increase.
• C. A student spends an evening studying for an economics exam instead of working a paid shift, so the opportunity cost is the wages the student would have earned.
• D. A government sets a maximum legal price for apartments, leading to a shortage of rental housing.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of opportunity cost. Opportunity cost is the value of the next best alternative foregone when making a choice under conditions of scarcity.
2. Step 2: Analyze each example to identify if it involves a trade-off where choosing one option means giving up another valuable alternative.
3. Step 3: For the firm buying a machine, note that the \$10,000 is a monetary cost, but opportunity cost should reflect what else could have been done with that money or resource, not just the price paid.
4. Step 4: For the store lowering coffee prices, recognize this describes a change in quantity demanded due to price change, which relates to demand elasticity, not opportunity cost.
5. Step 5: For the student studying instead of working, identify that the opportunity cost is the wages forgone by not working, which clearly illustrates the trade-off and scarcity of time, making it the best example of opportunity cost.