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1.3 Opportunity cost

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IGCSE Economics Notes  Opportunity cost

igcse-economics-notes-opportunity-cost

IGCSE Economics Opportunity Cost Notes 

Summary Fill in the Blanks

Click the highlighted blanks to reveal key definitions and ideas. Word choices are added in brackets where they help students recognise the accepted answer.

1 Meaning of opportunity cost

Opportunity cost is the
________________ best alternative forgone
when making a decision.
It is the cost of not choosing the
________________ next best option
.
Opportunity cost exists because people have to make
________________ choices
between limited alternatives.
Accepted words: (
________________ best alternative forgone / next best alternative forgone
)

2 Everyday decision making

If someone buys two regular t-shirts instead of one branded t-shirt, the opportunity cost is the
________________ branded t-shirt
they gave up.
If a student continues with post-graduation instead of starting work immediately, the opportunity cost is the
________________ income lost while studying
.
If a person buys a villa in the suburbs instead of a 2-bedroom apartment in a prime location, the opportunity cost is the
________________ better location
forgone.
In each case, choosing one option means giving up
________________ another option
.

3 Opportunity cost for consumers

A consumer choosing between two brands of liquid soap must decide what
________________ quantity of product
they are willing to give up.
If the consumer chooses the more popular brand, they may have to forgo some
________________ quantity
because the price is higher.
This means consumers compare
________________ cost and benefit
when making decisions.

4 Opportunity cost for workers

A worker choosing between a high-paying job and a dream job must compare
________________ wages, job satisfaction and promotions
.
If the worker chooses the dream job, the opportunity cost may be
________________ higher wages
.
If the worker chooses the high-paying job, the opportunity cost may be
________________ job satisfaction
.
Workers therefore face opportunity cost when choosing between different
________________ jobs
.

5 Opportunity cost for producers

A producer making one product instead of another faces
________________ opportunity cost
.
In the example of an artist, the subject not painted becomes the
________________ opportunity cost
.
This shows that producers must choose how to use scarce
________________ resources
.
Producing more of one thing usually means producing
________________ less of something else
.

6 Opportunity cost for governments

A government that spends money on disaster relief instead of a new airport faces an opportunity cost in the form of the
________________ postponed airport project
.
This shows that government spending involves making
________________ choices
between competing projects.
When resources are limited, governments cannot provide
________________ everything
at the same time.
So the opportunity cost is the project that is
________________ given up or delayed
.

You need to know:

(a) Opportunity cost means the best alternative forgone when a choice is made.

(b) It exists because resources are limited and choices must be made.

(c) Consumers, workers, producers and governments all face opportunity cost.

(d) Choosing one option always involves giving up another option.

(e) The next best alternative is the true opportunity cost, not just any alternative.

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Syllabus Objectives

Topics:

  • 1.3.1 definition of opportunity cost
  • 1.3.2 the influence of opportunity cost on decision making

Guidance :

  • Definition and examples of opportunity cost in different contexts.
  • Decisions made by consumers, workers, producers and governments when allocating their resources.

Video Lectures

Note:

 

  • The video is  a preview of our revision notes
  • Note that notes get revised from time to time as per expert advice. 
  • All the IGCSE Economics Notes   are meant for revision and hence are fully downloadable as well as printable once you become a paid member.

Exam Tips

 

Understand the Core Definition: Focus on the core idea of opportunity cost as the next best alternative that is forgone in any decision-making process.

Provide Clear Examples: Use specific examples from daily life or economics, like consumer decisions or government spending, to illustrate opportunity cost clearly.

Relate Opportunity Cost to Different Sectors: Be able to explain opportunity cost in the context of consumers, workers, producers, and governments, and provide real-world examples to support your answer.

Link Opportunity Cost to Scarcity: Make sure to connect opportunity cost with the concept of scarcity—since resources are limited, every choice involves giving up something else.

Clarity in Comparison: When comparing options, clearly show the trade-offs involved and what is being sacrificed for each choice made. This will demonstrate a deeper understanding.

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