Question

On his birthday, Kamran receives $200 from his aunt, $50 of which he decides to save. He is taken out by his father for lunch. His father pays the bill, Kamran spends the afternoon playing football. Which of these activities involves an opportunity cost?

a) No No no
b) No No Yes
c) No Yes Yes
d) Yes Yes Yes

Answer 1

Opportunity cost is the value of the next best alternative foregone. Kamran's decision to save money and to play football has opportunity costs, while his father paying for lunch does not involve an opportunity cost for Kamran.

Step-by-step explanation:

The concept of opportunity cost is central to understanding economic choices. In Kamran's scenario, the opportunity cost refers to what he must give up to do something else with his time or money. When Kamran decides to save $50, the opportunity cost is the alternative uses for that money, such as buying something else. However, since Kamran's father pays for lunch, there is no opportunity cost for Kamran in this case because he is not forgoing any other use of his own resources. Lastly, playing football implies an opportunity cost because Kamran foregoes whatever else he could have done with his time.

Understanding opportunity costs can sometimes change our behavior as we consider the value of our forgone alternatives. A daily choice, like buying lunch at work versus bringing it from home, can add up over time, potentially costing a considerable sum that could have been used for a vacation or another significant purchase. Ultimately, opportunity cost is about making informed choices that reflect our preferences and values given our budget constraints.