Question 1 (d)
Opportunity cost: a thing costs what is given up for it
4 marks
- Time to write
- About 8 minutes
Question
Question 1 (d) · 4 marks“The cost of something is what you give up in order to get it “, give an example to prove it.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- exampleExamples are asked for: one short example with each point.
What the paper leaves open
As printed, the closing quotation mark after "it" is an opening mark with a space before it.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Meaning of opportunity cost the next-best alternative given up 1½ marks 1 min
- 2 A worked example 2 marks 5 min
- 3 What the example shows about decisions ½ mark 1 min
Easy marks
- Meaning of opportunity cost (step 1, 1½ marks): a clear definition and a line on what it covers. It opens the answer, so it takes a minute or two.
Short on time? Step 2 carries 2 of the 4 marks: guard its minutes.
Try it first. About 8 minutes for 4 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Meaning. The statement is the principle of opportunity cost. Because resources (money, time, land, labour) are scarce, every choice means giving something up. The true cost of a choice is not only the money paid but the benefit of the next-best alternative that has to be given up to make it. Every decision has an alternative that must be foregone, and that foregone alternative is its opportunity cost; it can often be put in money terms.
Example: a shop owner. Our own example. Ramesh owns a small shop in Lucknow and runs a stationery business in it. In a year the business takes in ₹9,00,000 and he pays ₹4,00,000 for stock, electricity and a helper, so his books show a profit of ₹5,00,000. But to run the business he gives up two things:
- the rent of ₹2,40,000 a year he could earn by letting the shop to someone else; and
- the salary of ₹3,00,000 a year he could earn as a store manager with a retail chain.
| Cost of running his own business for a year | ₹ |
|---|---|
| Stock, electricity and helper (money actually paid) | 4,00,000 |
| Rent given up by not letting the shop | 2,40,000 |
| Salary given up by not taking the job | 3,00,000 |
| Full cost of running the business | 9,40,000 |
Counting only the money he pays out, the business looks profitable (₹5,00,000). Counting what he gives up to get it, its full cost is ₹9,40,000, more than its takings of ₹9,00,000: he is ₹40,000 worse off than if he let the shop and took the job.
What the example shows. A sensible choice compares the benefit of an option with everything given up to get it. Ramesh should keep the business only if he values being his own boss at more than ₹40,000 a year. The idea is the same for a country: when a state uses its budget to build a highway, the opportunity cost is the hospitals or schools that the same money could have built.
Conclusion. The statement is true: the cost of anything is measured by the best alternative given up to get it, which may be much larger than the money spent.
Where the 4 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Meaning of opportunity cost (the next-best alternative given up) | 1.5 |
| 2 | A worked example | 2 |
| 3 | What the example shows about decisions | 0.5 |
| Total | 4 |
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