Learning objective
Define opportunity cost and apply it to business choices.
Read the explanation, check the common trap, then practise with flashcards and questions.
At a glance
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Flashcards
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Topic
The purpose and nature of businesses
Subtopic
Business purpose, goods and services
Study support
Understand this objective
Quick explanation
Define opportunity cost and apply it to business choices
- This point belongs to The purpose and nature of businesses, especially Business purpose, goods and services.
- You need to be able to define opportunity cost and apply it to business choices.
- The key ideas to know are opportunity cost and business.
- Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.
Key concepts
Why it matters
This objective helps connect Business purpose, goods and services to exam-style questions, flashcards, and revision notes for The purpose and nature of businesses.
Quick student answer
Explain how a small retailer might calculate the opportunity cost of stocking a new product line.
Direct answer
The retailer would estimate the expected sales and profit from the new product line and compare it with the profit that could be earned by using the same shelf space for an alternative product. The difference between the two profits represents the opportunity cost of choosing the new line.
How it works
This calculation requires identifying the next best alternative use of resources and measuring the monetary benefit that would be lost by not choosing it.
Key terms
- Opportunity cost: The monetary value of the next best alternative that is forgone when a decision is made.
Common trap
Confusing opportunity cost with explicit cost: Opportunity cost includes the value of the next best alternative, not just the explicit costs.
Related questions
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Revision notestopic notes
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Open revision notesRelated learning objectives
- Explain what a business is and why businesses may start, including producing goods, supplying services, distributing products, fulfilling opportunities and benefiting others.
Business purpose, goods and services
- Distinguish goods from services and needs from wants in business contexts.
Business purpose, goods and services
- Explain the four factors of production: land, labour, capital and enterprise.
Factors of production and business sectors
- Define the primary, secondary and tertiary sectors.
Factors of production and business sectors
- Give business examples that operate in each sector.
Factors of production and business sectors