Question

Anya got $12 for her birthday. She considers buying a DVD of her favorite movie for $11. She also thinks about buying a new T-shirt for $14. Then she decides to buy a CD for $10. What is the opportunity cost of her decision? Explain your answer.

Answer 1

Here we have two different decisions. Opportunity cost of buying the CD and not buying the DVD is 1: ($11-$10). And opportunity cost of buying the CD and not buying the new T-shirt is 4: ($14-10). Opportunity cost is the difference between the value of the option chosen and the value of the best option not made. If the option I choose gives me a benefit of 10 but there is an alternative option offered by 12, the opportunity cost is 2.