IGCSE 0455 ECONOMICS SOLVED ANSWER ,OPPPRTUNITY COST

 

Opportunity cost

Opportunity cost is the next best alternative foregone for obtaining a thing.Opportunity cost refers to what you have to give up to buy what you want in terms of other goods or services.

         Because of the problem of scarcity it follows that choices have to be made. Consumers must choose what to buy out of their limited incomes. Producers must choose what to produce with their limited resources. Governments must choose what services to provide out of their limited tax revenues.

          Every choice involves a sacrifice and this sacrifice is called opportunity cost. Opportunity cost is the sacrifice of the next best alternative choice. For a consumer the opportunity cost of choosing a product is the next item on his/her scale of preference. For a producer the opportunity cost of producing a good is the next most profitable product which could have been produced with the resources used. For a government the opportunity cost of providing a service is the next best service which it could have provided with the resources used.

            In economics we assume that people are rational, i.e. when faced with a choice they will always choose the alternative that will give them the greatest satisfaction. This involves weighing up all the alternatives and then choosing the one that has the lowest opportunity cost.