1.2 Opportunity Cost

• What is opportunity cost?

  Next best alternative
• What are explicit costs?

  Monetary payment costs
• Match the cost type with its example:

  Explicit Cost ↔️ Rent payment

  Implicit Cost ↔️ Value of time studying
• The opportunity cost is the value or benefit of the next best alternative that was given up when the choice was made.alternative
• If you study for an economics test instead of working, the opportunity cost is the wages you would have earned.


  True
• What is the opportunity cost of spending two hours studying for an economics test instead of working a part-time job?

  Lost potential wages
• Match the scenario with its opportunity cost:

  Buying a house ↔️ Foregone investment returns

  Starting a business ↔️ Lost salary and benefits

  Taking a vacation ↔️ Overtime pay and productivity
• If you study for an economics test instead of working, the opportunity cost is the wages you could have earned.

  True
• What is the first step in calculating opportunity cost?

  Identify the choice made
• Opportunity cost is the value of the next best alternative forgone when a decision is made.alternative
• Implicit costs are opportunity costs that do not involve a monetary payment
• Steps to calculate opportunity cost in different scenarios

  1️⃣ Identify the choice made

  2️⃣ Determine the next best alternative

  3️⃣ Evaluate the value of the next best alternative
• Going to college involves explicit costs like tuition and implicit costs such as forgone wages
• Opportunity cost is the value of the next best alternative forgone when a decision is made.forgone
• Implicit costs represent the potential benefits that are forgone by choosing one option over another.forgone
• Steps to calculate opportunity cost in different scenarios:

  1️⃣ Identify the choice made

  2️⃣ Determine the next best alternative

  3️⃣ Evaluate the value of the next best alternative
• What is the opportunity cost of a decision?

  Next best alternative forgone
• Match the cost type with its characteristic:

  Explicit Costs ↔️ Monetary payment involved

  Implicit Costs ↔️ Opportunity cost without payment
• Purchasing an expensive textbook instead of investing in stocks results in the foregone investment returns as the opportunity cost.

  True
• What is the opportunity cost of studying for an economics test for two hours instead of working a part-time job?

  Wages earned during 2 hours
• Ignoring opportunity cost in decision-making can lead to suboptimal choices.


  True