Opportunity cost: Practice Questions

In economics, how is the concept of opportunity cost defined?

A farm can produce two combinations of apples and pears using all its resources:

Combination Q: \( 150 \text{ kg of apples} \) and \( 50 \text{ kg of pears} \)
Combination R: \( 80 \text{ kg of apples} \) and \( 100 \text{ kg of pears} \)

What is the opportunity cost to the farm of moving production from point Q to point R?

A government has a limited budget surplus and chooses to spend it on a new healthcare program. Its other options, in order of preference, were:
1. Reducing the national debt
2. Increasing spending on primary education
3. Cutting income tax rates
What is the opportunity cost of this decision?

A person has to choose between three activities on a Saturday afternoon: watching a football match, going to the gym, or visiting a library. They prefer the football match the most, followed by the gym. They choose to watch the football match.

What is the opportunity cost of this decision?

A student is deciding how to spend her Saturday. She can volunteer at a charity, work for a wage of \( \$60 \), or attend a concert. She ranks the concert as her first choice, volunteering as her second choice, and working as her third choice.

What is the opportunity cost of her attending the concert?

A city council has a fixed budget and decides to build a new public library instead of renovating a local park. State the opportunity cost of this decision to the city council.

A student spends \( \$20 \) on a textbook instead of a cinema ticket. Explain the opportunity cost of this decision in the context of the basic economic problem.

A furniture manufacturer has a limited supply of wood. They can use this wood to produce either \( 20 \) wardrobes or \( 50 \) coffee tables. The manufacturer decides to produce the \( 20 \) wardrobes.

a) Define opportunity cost.
b) Identify the opportunity cost to the manufacturer in this scenario.
c) Explain why the basic economic problem of scarcity makes opportunity cost unavoidable for this manufacturer.

A developing nation has large areas of uncultivated land. The government is debating whether to preserve this land for ecotourism or to allow a multinational corporation to develop it into commercial farmland.

a) Define the factor of production Land and provide two examples of its quality in the context of commercial farming.

b) Explain how the geographical mobility of Land limits the government's options compared to the mobility of Labour.

c) Analyze how the opportunity cost of choosing ecotourism over commercial farming might change if the global price of food increases by \( 50\% \).

d) Evaluate the extent to which an increase in the quantity of Enterprise in this nation could help overcome the basic economic problem of scarcity.