Question

Ethan received a gift card and was considering three options: digital camera, cell phone, and video games. After carefully thinking about it, Ethan narrowed his decision down to the digital camera and the cell phone. Finally, Ethan chose the cell phone. In three to five sentences, define opportunity cost and trade-off and then explain the opportunity cost and trade-off of Ethan's decision.

Answer 1

An opportunity cost is the next best option and a trade-off was the other options. In Ethan´s case, his opportunity cost was the digital camera because that´s what his last decision was between, the camera and the phone. His trade-off was the video games, because in his first decision between the three, he decided that the video games were not as important as a camera or a phone.

Answer 2

There is no opportunity cost. The cell phone encompasses all three of the features sought after.