GED Social Studies TestEconomicsEasy
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 would have received from the laptop is known as the:
- AOpportunity cost
- BConsumer surplus
- CMarginal utility
- DSunk cost
Show answer & explanationAnswer & explanation
Correct answer: A. 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 opportunity cost of buying the smartphone is the laptop that the consumer chose not to buy.
Why the other options are wrong
- B. Consumer surplus is the difference between what a consumer is willing to pay and what they actually pay.
- C. Marginal utility is the additional satisfaction gained from consuming one more unit of a good or service.
- D. A sunk cost is money already spent and cannot be recovered.
Opportunity Cost
The value of the next best alternative that was not chosen when a decision was made. It is the benefit that could have been gained from an alternative action.
- Applies to all decisions, economic or otherwise
- Is always the value of the *next* best alternative
- Helps in rational decision-making
Memory trick: Every choice has a cost, the best unchosen is the OPPORTUNITY.