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IGCSE Economics Resources
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1.3 Opportunity cost Topic Questions / Paper 1/ 0455 / 0987
Test your Self
Topic: Opportunity Cost
Try the questions first. Click to reveal the correct answer and explanation.
Try the questions first. Click to reveal the correct answer and explanation.
Q1. A power station was built to provide electricity to rural villages in Namibia. What was its opportunity cost?
Reveal Answer
Correct Answer: B – the school which could have been built instead
Opportunity cost is the next best alternative forgone. If resources were used to build the power station, they could not be used to build something else, such as a school. That forgone school is the opportunity cost.
Opportunity cost is the next best alternative forgone. If resources were used to build the power station, they could not be used to build something else, such as a school. That forgone school is the opportunity cost.
Q2. What economic concept must be at work when there is movement by a country along its production possibility curve?
Reveal Answer
Correct Answer: D – opportunity cost
A movement along a production possibility curve means that to produce more of one good, a country must produce less of another. This trade-off shows opportunity cost, because increasing one output involves sacrificing another.
A movement along a production possibility curve means that to produce more of one good, a country must produce less of another. This trade-off shows opportunity cost, because increasing one output involves sacrificing another.
Q3. The Norwegian government chose to spend the profits from oil on stocks, bonds and property. The possibility of improving domestic infrastructure, therefore, was not taken. Which economic concept does this best illustrate?
Reveal Answer
Correct Answer: C – opportunity cost
The government chose one use of funds and gave up another possible use, improving domestic infrastructure. The value of that forgone alternative is the opportunity cost.
The government chose one use of funds and gave up another possible use, improving domestic infrastructure. The value of that forgone alternative is the opportunity cost.
Q4. A generating station was built to supply electricity to a rural village in Africa. What was the opportunity cost to the local economy?
Reveal Answer
Correct Answer: C – the school that was not built as a result
Opportunity cost is not the money cost of the project itself. It is the next best alternative that had to be given up. If building the generating station meant a school could not be built, then the school is the opportunity cost.
Opportunity cost is not the money cost of the project itself. It is the next best alternative that had to be given up. If building the generating station meant a school could not be built, then the school is the opportunity cost.
Q5. The Chinese government is concerned about the level of poverty and the need for more resources in low-income regions of the country. As a result, it is increasing its expenditure in those regions and reducing it in high-income regions. Which economic concept does this government policy illustrate?
Reveal Answer
Correct Answer: C – opportunity cost
The government is choosing to spend more in low-income regions, which means it must give up some spending in high-income regions. The value of the next best alternative forgone is the opportunity cost, so option C is correct.
The government is choosing to spend more in low-income regions, which means it must give up some spending in high-income regions. The value of the next best alternative forgone is the opportunity cost, so option C is correct.
Q6. Which statement is correct?
Reveal Answer
Correct Answer: D – Free goods have no opportunity cost
A free good is available without using scarce resources, so choosing to consume it does not involve giving up another scarce alternative. That is why free goods have no opportunity cost. Economic goods are scarce and do have opportunity cost.
A free good is available without using scarce resources, so choosing to consume it does not involve giving up another scarce alternative. That is why free goods have no opportunity cost. Economic goods are scarce and do have opportunity cost.
Q7. What has an opportunity cost in consumption?
Reveal Answer
Correct Answer: B – food
Food is an economic good because it is scarce and uses resources to produce. Consuming food means giving up the chance to use money or resources on something else, so it has an opportunity cost. Air, sea water and sunlight are usually treated as free goods.
Food is an economic good because it is scarce and uses resources to produce. Consuming food means giving up the chance to use money or resources on something else, so it has an opportunity cost. Air, sea water and sunlight are usually treated as free goods.
Q8. A firm decides to stop manufacturing ovens and to produce washing machines instead. What is the opportunity cost to the firm?
Reveal Answer
Correct Answer: D – the loss of the production of ovens
Opportunity cost is the next best alternative forgone. If the firm switches from ovens to washing machines, the thing it gives up is the production of ovens. That is why option D is correct.
Opportunity cost is the next best alternative forgone. If the firm switches from ovens to washing machines, the thing it gives up is the production of ovens. That is why option D is correct.
Q9. A country is producing at point X on its production possibility curve which shows how it can allocate its production between capital goods and consumer goods. A period of recession then causes some of its factories to close. Which point could represent the country’s new position?
Reveal Answer
Correct Answer: C – C
When factories close in a recession, the economy cannot use all of its resources fully. This means production moves from a point on the production possibility curve to a point inside the curve. Point C is inside the curve, so it shows underused resources and is the correct answer.
When factories close in a recession, the economy cannot use all of its resources fully. This means production moves from a point on the production possibility curve to a point inside the curve. Point C is inside the curve, so it shows underused resources and is the correct answer.
Q10. Helium is a gas that is limited in supply. It takes thousands of years to form from decaying radioactive rocks. The US government holds 35% of the world’s supply and has been selling its stocks. Helium is essential in medical scanners. It is also used for party balloons which some say is a wasteful alternative use of a valuable good. Which concepts can be applied to the above statement?
Reveal Answer
Correct Answer: D – opportunity cost, public sector
Using helium for party balloons means giving up another valuable use, such as medical scanners. That shows opportunity cost. The statement also refers to the US government holding and selling helium stocks, which involves the public sector. Therefore option D is correct.
Using helium for party balloons means giving up another valuable use, such as medical scanners. That shows opportunity cost. The statement also refers to the US government holding and selling helium stocks, which involves the public sector. Therefore option D is correct.
Q11. Heavy rain caused floods in an area of a country. What may be an opportunity cost of repairing the damage caused?
Reveal Answer
Correct Answer: A – the allocation of government funds to the area instead of on a new airport
Opportunity cost is the next best alternative forgone. If government funds are used to repair flood damage, those funds cannot be spent on something else, such as a new airport. That forgone alternative is the opportunity cost, so option A is correct.
Opportunity cost is the next best alternative forgone. If government funds are used to repair flood damage, those funds cannot be spent on something else, such as a new airport. That forgone alternative is the opportunity cost, so option A is correct.
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