Opportunity Cost - Revision Worksheet Section A: Key Concepts 1. 2. 3. 4. 5. Define opportunity cost in your own words. Explain why opportunity cost is an important concept in economics. Differentiate between explicit and implicit costs with examples. How does opportunity cost relate to the concept of scarcity? Describe a real-life situation where you have faced an opportunity cost. Section B: Multiple Choice Questions 1. Opportunity cost refers to: a) The money spent on a product b) The next best alternative forgone c) The total cost of producing goods d) The revenue earned from selling a product 2. Which of the following is an example of an opportunity cost? a) Buying a coffee instead of saving the money b) Earning a salary from a job c) Receiving a discount on a product d) Paying a tax on imported goods 3. Which of the following best represents an implicit cost? a) Wages paid to workers b) Rent paid for office space c) Interest on a business loan d) Foregone salary when starting your own business Section C: Short Answer Questions 1. Explain how opportunity cost affects business decisions. 2. How does opportunity cost influence government policy-making? 3. Draw a simple production possibility frontier (PPF) and illustrate opportunity cost with an example. 4. Why do individuals and businesses need to consider opportunity cost before making decisions? 5. If a student chooses to study instead of working part-time, what is the opportunity cost of this decision? Section D: Case Study Read the following scenario and answer the questions below: Sarah has $50 to spend. She is deciding between buying a new book or going to the movies with her friends. The book costs $50, and the movie ticket and snacks cost the same amount. If she buys the book, she will have to miss out on the movie night with her friends. 1. What is the opportunity cost of Sarah buying the book? 2. How might Sarah’s decision change if she values social experiences more than reading? 3. If Sarah had more than $50, would opportunity cost still be relevant? Explain. Section E: Application Questions 1. Consider a business deciding between investing in new machinery or hiring more workers. What factors should the business consider when evaluating the opportunity cost of each option? 2. Discuss how opportunity cost can apply to environmental policies, such as preserving forests versus using land for agriculture. 3. How do opportunity costs affect personal finance decisions, such as saving versus spending? Conclusion Opportunity cost is a crucial concept in economics, influencing decisions at individual, business, and government levels. Understanding how to evaluate and apply opportunity cost can lead to better decision-making in various aspects of life.
