A Level Economics AQA Practice Exam

What is meant by 'opportunity cost'?

1. The total economic costs faced by an economy

2. The benefit lost from the next best alternative forgone

3. The costs associated with producing goods

4. The total amount of resources available

The correct answer is: The benefit lost from the next best alternative forgone

Opportunity cost refers to the value of the next best alternative that is foregone when a decision is made to pursue a particular action or choice. It highlights the concept that resources are scarce, and when one option is chosen, the benefits that could have been gained from the other alternatives are lost. This principle is fundamental in economics because it helps individuals and firms make informed decisions by considering not just the explicit costs of their choices but also the implicit costs associated with missed opportunities. In this context, understanding opportunity cost assists in evaluating trade-offs, whether for personal decisions such as spending time or money, or for businesses determining how to allocate resources efficiently. Recognizing that every choice has an opportunity cost encourages more strategic thinking in economic planning and resource management.