Question

The potential benefit that is given up when one alternative is selected over another is called _______.

1) Relevant Cost
2) Avoidable Cost
3) Differential Cost
4) Opportunity Cost

Answer 1

Opportunity cost is the value of the next best alternative that is given up when choosing one option over another, representing the true cost of decisions in terms of foregone benefits. The correct option is 4.

Step-by-step explanation:

The potential benefit that is given up when one alternative is selected over another is called opportunity cost. Opportunity cost represents the benefits an individual, investor, or business misses out on when choosing one alternative over another. It's considered the value of the next best alternative you have to give up to pursue a certain action.

For instance, if a person chooses to spend a Friday night at the movies over working at a part-time job, the opportunity cost might be the money that could have been earned at that job.

Economists commonly refer to opportunity cost to explain the fundamental relationship between scarcity and choice. It's a concept that prompts people to consider the true cost of decisions, not just in terms of monetary outlays but also in terms of what they must forgo in their choices.