Scarcity occurs when resources are limited relative to wants, and opportunity cost is the value of the next-best alternative forgone. Which Australian example best illustrates opportunity cost?

Scarcity occurs when resources are limited relative to wants, and opportunity cost is the value of the next-best alternative forgone. Which Australian example best illustrates opportunity cost?

• A. Scarcity means resources are unlimited relative to wants.
• B. An Australian family choosing between a new phone and a holiday; the foregone holiday is the opportunity cost.
• C. Opportunity cost is the price paid for a good.
• D. Demand shifts when income changes.

Answer: (B)

Opportunity cost is what you give up when you make a choice because resources are scarce. It’s the value of the next-best alternative that you forgo. The Australian family choosing between a new phone and a holiday shows this clearly: if they buy the phone, the holiday they didn’t take is the opportunity cost, since that is the best alternative use of their money and time. It’s not just the price of the phone; it’s the value of the holiday they could have had. The other options don’t capture this idea because they either misstate scarcity, equate opportunity cost with price, or describe a different concept (demand shifts).

Opportunity cost is what you give up when you make a choice because resources are scarce. It’s the value of the next-best alternative that you forgo. The Australian family choosing between a new phone and a holiday shows this clearly: if they buy the phone, the holiday they didn’t take is the opportunity cost, since that is the best alternative use of their money and time. It’s not just the price of the phone; it’s the value of the holiday they could have had. The other options don’t capture this idea because they either misstate scarcity, equate opportunity cost with price, or describe a different concept (demand shifts).