2281 · 1.1
Practice and worked examples for 2281 The nature of the economic problem. Short previews only — attempt the full question in MarkScheme against the official scheme.
A student chooses to study economics for an hour instead of working a part-time job paying £8. What is the opportunity cost?
The £8 wage (or whatever could have been earned) — the next best alternative forgone.
If leisure was valued more than £8, the OC of studying might be that leisure.
A local government has a budget of $20 million for public projects. It can either build a new community sports centre for $20 million or use the money to resurface 40 km of roads at a cost of $500,000 per km. The government decides to build the sports centre. Calculate the opportunity cost of this decision.
The opportunity cost is the next best alternative that was forgone.
Step 1: Identify the choice made. The government chose to spend its entire $20 million budget on building a new community sports centre.
Step 2: Identify the alternative forgone. The alternative was to resurface local roads.
Step 3: Calculate the value of the alternative. The budget available is The cost to resurface one kilometre of road is Number of km that could be resurfaced = Total Budget / Cost per km Calculation: 500,000 per km = 40 km.
Step 4: State the opportunity cost. The opportunity cost of building the sports centre is the 40 km of resurfaced roads that the community must now go without. It is the specific service forgone, not just the monetary value.