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Question

Difficulty: MediumScarcity and Choice

A student receives a cash gift of ₦5,000 and must choose between buying a prescribed Economics textbook and purchasing a new pair of shoes, both priced at ₦5,000. If the student decides to buy the textbook, what is the opportunity cost of this decision?

  1. The pair of shoes foregoneAnswer
  2. B
    The ₦5,000 cash paid for the textbook
  3. C
    An outward shift of the student's production possibility curve
  4. D
    The total utility gained from reading the textbook

Answer

The pair of shoes foregone
Opportunity cost represents the real cost of a choice, expressed in terms of the next best alternative foregone. Because purchasing the textbook means giving up the pair of shoes, the shoes represent the opportunity cost.

Step-by-Step Solution

1
Identify the scarce resource and the competing alternatives.
The student has a limited budget of ₦5,000 and two mutually exclusive wants: a textbook and shoes.
Scarcity of resources forces consumers to make a choice among competing wants.
2
Apply the definition of opportunity cost to the choice made.
By selecting the textbook, the student sacrifices the opportunity to own the pair of shoes.
Opportunity cost (real cost) is defined as the next best alternative foregone when a choice is executed.

Key Concept

Opportunity Cost vs Money Cost
Estimated Time:1m 0s
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Topics

Scarcity and Choice

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