Multiple Choice
In microeconomics, what is the opportunity cost of holding currency (cash) rather than investing those funds?
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0. Basic Principles of Economics
Scarcity and Choice
Multiple Choice
In microeconomics, what is meant by opportunity cost?
A
The difference between total revenue and total explicit costs
B
The amount of a good that consumers are willing and able to buy at each price
C
The value of the next best alternative that is forgone when a choice is made
D
The total amount of money spent on a good, including taxes and fees
Verified step by step guidance1
Understand that opportunity cost is a fundamental concept in microeconomics that refers to the value of the next best alternative that must be given up when making a decision.
Recognize that it is not simply the explicit monetary costs or expenses, but includes both explicit and implicit costs, capturing what you sacrifice in terms of foregone alternatives.
Note that opportunity cost differs from total revenue minus explicit costs, which relates more to accounting profit rather than economic cost.
Distinguish opportunity cost from consumer demand concepts, such as the amount of a good consumers are willing and able to buy at each price, which is unrelated to opportunity cost.
Conclude that the correct understanding of opportunity cost is the value of the next best alternative forgone when a choice is made, emphasizing the trade-offs inherent in economic decisions.
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