Question 1

Is money considered a factor of production?

Accepted Answer

No. In A-Level Economics, money is a medium of exchange used to acquire factors of production. It is not a productive resource in itself. The factor 'Capital' refers specifically to physical, man-made assets like machinery, equipment, and buildings that are used to produce other goods and services.

Question 2

Is opportunity cost always measured in money?

Accepted Answer

No, opportunity cost is a broader concept. It represents the next best alternative, which may not have a direct monetary value. For example, the opportunity cost of you spending two hours studying for an economics exam could be the two hours of sleep you have forgone. The 'cost' is the lost sleep, not a specific sum of money.

Question 3

If a product is offered as 'buy one, get one free', does the 'free' item have an opportunity cost?

Accepted Answer

Yes, absolutely. While the consumer does not pay a monetary price for the second item, its production still required the use of scarce resources (land, labour, capital). These resources could have been used to produce something else. Therefore, from society's perspective, there is an opportunity cost. Nothing is truly free as long as it is produced using scarce resources.

Scarcity, choice and opportunity cost

What you need to know

Scarcity, choice and opportunity cost