Question

Which of the following defines the economic concept of opportunity cost? A. the disappointment experienced as a result of missing a valuable opportunity B. the next most attractive alternative, given up when making an economic choice C. the risks associated with any opportunity for a potential economic reward D. the anal

Short answer

B. the next most attractive alternative, given up when making an economic choice

Step-by-step solution

Understand the Question

Identify what the question is asking. It is inquiring about the definition of the economic concept of opportunity cost.

Analyze Each Option

Carefully read each provided option - A, B, C, and D - and understand what each one is suggesting about opportunity cost.

Apply the Definition of Opportunity Cost

Recall that the economic concept of opportunity cost relates to the value of the next best alternative that is forgone when making a choice.

Compare Options to Definition

Match the options with the definition. A. talks about disappointment, which does not fit. B. describes the next most attractive alternative given up, which matches the definition. C. discusses risks, which are not directly related to opportunity cost. D. is incomplete.

Select the Correct Option

Based on the comparisons in Step 4, option B is the best match for the definition of opportunity cost.

Key concepts

economic choice

When we talk about an economic choice, we mean the decision-making process regarding the use of limited resources. Everyone faces situations where they need to decide how to allocate their time, money, or other resources. Because resources are limited but wants are unlimited, every choice comes with a trade-off. For example, if you have $20, you might have to decide whether to spend it on a book or a meal. The chosen option reflects your economic choice.

To make an informed economic choice, people often weigh the benefits of different alternatives. They take into account their preferences, budget constraints, and the potential outcomes of each option. This helps them maximize their satisfaction or 'utility' from the limited resources they have.

It's fascinating to see how this simple concept forms the basis of many larger economic theories and practices. Whether you're deciding on your next course in college or a government deciding on public policies, the principles of economic choice always apply.

alternative

The concept of an alternative is central to understanding opportunity cost. An alternative is any option you have besides the one you choose. In our daily lives, alternatives are everywhere. For instance, if you decide to spend time watching a movie, your alternatives could include reading a book, going for a walk, or studying.

In economic terms, every choice involves considering various alternatives. When you make a decision, you are essentially picking one alternative over others. The alternative you don't pick is often referred to as the 'next best alternative.' Understanding the next best alternative is crucial for estimating the opportunity cost of a decision.

In more complex scenarios, businesses analyze alternatives when making investment decisions. They study various project proposals and choose the one expected to deliver the highest return, thereby maximizing their resources effectively.

value

Value in economics refers to the worth of a good or service, which plays a crucial role in determining opportunity cost. Simply put, value is what you gain from a choice, and it can be both tangible (like money) or intangible (like satisfaction or happiness).

Opportunity cost is directly related to the concept of value because it measures the value of the foregone alternative. For example, if you choose to spend an evening studying instead of going out with friends, the opportunity cost is the value of the enjoyment and social time you missed.

In a business context, value can also mean the potential profit or benefit that is lost when resources are devoted to one project instead of another. By understanding value, individuals and organizations can make more informed decisions that align with their goals and maximize their available resources.