Question

Jose sold antique wooden furniture for $4,000 that he bought two years ago for $4,000. He says, "At least I didn't lose any money on my investment." His economist friend points out that in effect he did lose money because he could have received a 3.75 percent return, per annum, on the $4,000 if he had bought a bank certificate of deposit instead of the wooden furniture. The economist's analysis in this case incorporates the idea of

a) Normative economics.
b) Opportunity costs.
c) Imperfect information.
d) Marginal benefits that exceed marginal costs.

Answer 1

The economist's remark to Jose about having lost money reflects the concept of opportunity costs, highlighting the missed potential earnings from a bank certificate of deposit instead of the furniture investment.

Step-by-step explanation:

The economist's analysis of Jose's situation incorporates the idea of opportunity costs, which refers to the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. In this case, Jose missed out on the potential income he could have earned from the bank certificate of deposit, which would have provided a 3.75 percent return per annum on the $4,000 investment. Therefore, although Jose didn't lose the initial amount of money he invested in the antique wooden furniture, he effectively lost the additional income he could have earned if he had chosen the alternative investment option.