Final answer:
Nancy's decision to study for an exam over earning money is an example of prioritizing activities based on perceived utility, with the higher opportunity cost associated with the forgone activity that offers the highest wage, which is babysitting in this case.
Step-by-step explanation:
When Nancy chooses to study for an exam over working for pay, it suggests that she values exam preparation the most out of the options available to her. This choice does not necessarily mean that she enjoys studying more than the other activities, but that she has prioritized it, perhaps for its long-term benefits on her education and future.
The opportunity cost of Nancy's decision is the value of the next best alternative forgone, which in this case, would be the $8 she could have earned from babysitting. Hence, her opportunity cost is higher when she chooses to study rather than work, because she misses out on the chance to earn the higher wage from babysitting.
Opportunity cost is a key concept in economics that measures the cost of choosing one option by forgoing the next best alternative. In Nancy's scenario, the opportunity cost is not simply the wage foregone, but also the utility or satisfaction that she would have gained from babysitting or lawn mowing. It is clear that Nancy has determined that the utility of studying for her exam outweighs the utility of earning money through work in this instance.