Opportunity cost flashcards

What is opportunity cost?

The value of the next best alternative foregone when making a choice.

Example of opportunity cost.

Choosing to spend $20 on a movie means you can't buy a book or save that money.

True or false: Opportunity cost includes only monetary costs.

False, because it also includes time and resources.

Difference between explicit and implicit costs.

Explicit costs involve direct monetary payments; implicit costs involve non-monetary factors.

Fill in the blank: The opportunity cost of a 4-year college is _____ .

Tuition, lost wages, and time invested.

What affects opportunity cost?

Availability of resources, time preferences, and personal priorities.

True or false: Opportunity cost is only relevant to businesses.

False, because individuals face opportunity costs in daily decisions.

Question: If you choose to study instead of working, what's the opportunity cost?

The income you could have earned during that time.

Comparison: Marginal cost vs Opportunity cost.

Marginal cost is the cost of producing one more unit; opportunity cost is the value of the next best alternative.

What is sunk cost?

A cost that has already been incurred and cannot be recovered, which shouldn't factor into future decisions.

Example of a personal opportunity cost.

Choosing to go on vacation means giving up work hours and potential income.

Fill in the blank: Every choice we make involves _____ costs.

Opportunity costs.

True or false: Opportunity cost only applies to financial decisions.

False, it applies to all choices involving trade-offs.

What is the production possibilities frontier?

A graph showing the maximum possible output combinations of two goods, illustrating opportunity costs.

Question: How does opportunity cost impact consumer choices?

It helps consumers evaluate the best alternatives based on their preferences.