A Level Economics AQA Practice Exam

Which of the following best describes opportunity cost?

1. The price of an item in the market

2. The benefit obtained from using an alternative resource

3. The highest valued alternative foregone when making a decision

4. The total cost of production

The correct answer is: The highest valued alternative foregone when making a decision

Opportunity cost is best defined as the highest valued alternative foregone when making a decision. This concept emphasizes the trade-offs that individuals and businesses face when choosing one option over another. Essentially, every time a choice is made, the next best alternative that is not chosen represents a cost; it is the value of the most beneficial foregone alternative. For example, if you decide to spend your time studying for an exam instead of working at a part-time job, the opportunity cost would be the income you could have earned during that time or the experience you might have gained at work. This definition highlights the importance of considering not just monetary costs, but also what is sacrificed in terms of utility or benefit by choosing one course of action over another. The other options present definitions or components that do not capture the essence of opportunity cost. For instance, simply stating the price of an item in the market does not reflect the concept of alternatives and trade-offs. The benefit obtained from using an alternative resource does not specifically address the idea of what is given up. Lastly, the total cost of production encompasses all expenses related to creating goods or services but does not relate to the individual choices and the alternatives that are being forsaken.