Question

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any moncy on my financial investment." His economist friend points out that in effect he did lose moncy because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The cconomist's analysis in this case incorporates the idea of a. opportunity costs b. marginal benefits that exceed marginal costs. c. imperfect information. d. normative economics

Answer 1

The correct answer is option a.

Step-by-step explanation:

Opportunity cost can be defined as the cost of giving up or sacrificing the second-best alternative. In other words, it is the benefit that could have been earned if the alternative was not sacrificed.

Here, Joe bought gold coins for $1,000 and sold them at the same price. He could have instead invested in a certificate of deposit and earned a 3% interest rate. So here the opportunity cost of purchasing the gold coins is the interest earnings sacrificed.