Question

Kevin has $20 to spend on summer clothes. He is looking at shirts, shorts, and flip-flops. Shirts are $10, shorts are $15, and flip-flops are $10. He buys one shirt because he thinks that buying the shirt is worth the opportunity cost of the shorts and the flip-flops. Which statement best evaluates his reasoning?
Kevin has analyzed the situation well. He purchased a shirt and that purchase cost the opportunity of buying the shorts or flip flops.
Kevin was wrong in his analysis. He has confused opportunity costs with trade-offs by thinking of both of the lost items as opportunity costs.
Kevin was wrong in his analysis. The opportunity cost consists of more than the shorts and flip-flops. It also includes other choices he could have made with the $10.
Kevin has analyzed the situation well. However, he should also consider the fact that he saved $10 by only purchasing the shirt.

Answer 1

Kevin has analyzed the situation well. However, he should also consider the fact that he saved $10 by only purchasing the shirt.

Opportunity cost is the cost of the forgone alternative. Out of the 3 choices, he only purchased 1 of the choices, the opportunity cost are the other two choices. However, he is still capable of buying the flip-flops costing $10 but he chose not to do so. He should consider it as a savings aside from it being a lost opportunity.