GED Social Studies TestEconomicsMedium
A consumer decides to purchase a new smartphone for $800 instead of a new laptop computer that also costs $800. The satisfaction or benefit the consumer gives up by not choosing the laptop is known as the:
- AMarginal utility
- BOpportunity cost
- CSunk cost
- DProduction cost
Show answer & explanationAnswer & explanation
Correct answer: B. Opportunity cost
Opportunity cost is the value of the next best alternative that was not taken when a decision was made. In this case, the laptop is the next best alternative given up for the smartphone.
Why the other options are wrong
- A. Marginal utility is the additional satisfaction from consuming one more unit, not the value of the foregone alternative.
- C. Sunk cost is a cost already incurred and cannot be recovered, irrelevant to future decisions.
- D. Production cost refers to the expenses incurred by a producer, not the consumer's foregone benefit.
Opportunity Cost
The value of the next best alternative that must be foregone when a choice is made.
- Applies to individuals, businesses, and governments.
- Is not necessarily a monetary cost.
- A fundamental concept in economic decision-making.
Memory trick: Every choice has a hidden cost: what you gave up.