Multiple Choice
Which of the following situations best illustrates the concept of a trade-off due to scarcity?
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0. Basic Principles of Economics
Scarcity and Choice
Multiple Choice
Which of the following best describes the opportunity cost of keeping cash at home?
A
The inconvenience of not having cash available for immediate purchases
B
The depreciation of the value of cash due to inflation
C
The interest or returns that could have been earned if the cash was deposited or invested elsewhere
D
The physical security risk of theft or loss
Verified step by step guidance1
Step 1: Understand the concept of opportunity cost, which is the value of the next best alternative foregone when making a decision.
Step 2: Identify the alternatives to keeping cash at home, such as depositing it in a bank or investing it in financial assets.
Step 3: Recognize that the opportunity cost of holding cash at home is the potential interest or returns that could have been earned if the cash were invested or deposited instead.
Step 4: Differentiate this from other costs or risks, such as inconvenience, depreciation due to inflation, or security risks, which are not opportunity costs but rather other types of costs or risks.
Step 5: Conclude that the best description of the opportunity cost of keeping cash at home is the forgone interest or returns from alternative uses of that cash.
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