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Opportunity cost Edexcel International GCSE Economics revision

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In plain words

Every choice has a cost that is not counted in money: the thing you gave up to have it. If you spend your evening revising, the film you would have watched is the cost.

Economists call this the opportunity cost. It is only the best alternative you gave up, not everything else you might have done.

Three things to know

  1. Opportunity cost is the next best alternative forgone when a choice is made.
  2. It applies to everyone: consumers choosing what to buy, workers choosing a job or leisure, firms choosing what to make, governments choosing what to spend on.
  3. Comparing opportunity costs helps people decide: choose the option whose benefit is worth more than what is given up.

Worked example

A farmer can use a field for wheat, which would earn $5000, maize, which would earn $4200, or grazing, which would earn $3000. She grows wheat. What is the opportunity cost?

  1. List the alternatives she gave up: maize ($4200) and grazing ($3000).
  2. Opportunity cost is the best of them, not the total.
  3. The opportunity cost is the maize, worth $4200.

Tips and tricks

  • "Next best" is the phrase to use. Only one alternative counts: the best one given up.
  • Give the opportunity cost as the thing, not just a sum of money: "the motorway that could have been built".
5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Opportunity cost: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

  1. What is opportunity cost?
    • the price paid for a good
    • the total of everything else you could have bought
    • the next best alternative forgone (the answer)
    • the cost of producing one more unit

    One alternative, the best one given up.

  2. A firm uses its factory to make chairs. It could have made tables, its second choice, or shelves, its third. What is the opportunity cost of the chairs?
    • the tables (the answer)
    • the shelves
    • the tables and the shelves
    • the chairs

    Only the next best alternative counts.

  3. A worker chooses to take an extra day off each week. What is the opportunity cost?
    • the leisure time gained
    • the wages for that day (the answer)
    • the cost of travelling to work
    • nothing, because leisure is free

    By choosing leisure the worker gives up a day's pay.

  4. Why does a free good have no opportunity cost?
    • It is paid for by the government.
    • No resources are given up to obtain it. (the answer)
    • Nobody wants it.
    • It is very cheap.

    If nothing has to be given up, there is no opportunity cost.

  5. A government builds a road on farmland. Which is an opportunity cost of the road?
    • the tax paid by drivers
    • the time saved by drivers
    • the crops the land would have grown (the answer)
    • the jobs created building it

    The crops are what the land would have produced in its other use.

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