Universiti Tunku Abdul Rahman

Centre for Foundation Studies

FHBM1014 Principles of Economics

3. When you make a choice, the most valuable alternative you DO NOT choose is
your OPPORTUNITY COST. There is an opportunity cost to every economic
decision.

(a) You have just received $10 for a birthday present. You decide to buy
either a soccer ball, a large box of candy, or a teddy bear. Put a 1 under the
good you will buy. Put a 2 under your second choice, and a 3 under your
third choice.

3 2 1

(b) What is the opportunity cost of your decision?

My opportunity cost is the large box of candy.

(c) Suppose your friend has the same first choice as you. Does this mean his
or her opportunity cost is the same as yours? Why or why not?

Yes, because my friend and I have the same opportunity cost. Since,
we made the best alternative sacrife for a chosen alternative.

(d) Betsy has 1 hour until bedtime. She can read a book, play a game, or bake
a cake. She decides to play a game. Her second choice is to read a book,
and her third choice is to bake a cake. What is the opportunity cost of her
decision? Can Betsy’s opportunity cost be reading the book and baking a
cake? Why or why not?
Betsy's opportunity cost is reading a book and baking a cake.