Question

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of Question 1 options: A) imperfect information. B) opportunity costs. C) marginal benefits that exceed marginal costs. D) normative economics.

Answer 1

Answer:

B) opportunity costs.

Explanation:

Opportunity cost is the fortified benefits when a choice is made. It is the sacrificed option from a  variety of possible choices. The value of opportunity cost is expressed as the cost of the next best alternative.

According to the economist, Joe made a loss because his opportunity cost would have yielded a better return. In evaluating the viability of a project, economists always consider the returns from the next best alternative. Joe would have made a profit if the returns from the sales of gold were higher than the 3 percent from a certificate of deposit.  Because Joe opted for the gold, he missed the chance to earn from the certificate of deposit. In economics, he made a loss.