Cambridge IGCSE and O Level Economics

Chapter 3: Opportunity cost

Suggested answers to individual and group activities
Group activities
1 The best alternative job to being an accountant, such as being a teacher, is likely to be better paid
and have better working conditions than the best alternative job to being a window-cleaner

Individual activities
1 a Other types of fruits, e.g., bananas, mangoes or pears.
b Another degree course, e.g., mathematics, or a job.
c Other uses of the land including housing, an office or a park.
d $450 − by keeping the TV, she is forgoing $450.

Suggested answers to multiple choice questions and

four-part question
Multiple choice questions
1 A
A Definition required.
2 C 1
By going to the university, the student is giving up the opportunity to earn $15 000 a year for
three years – a total of $45 000.
3 C
A free good has no opportunity cost as it exists without resources being used to make it.
4 D
They all involve an opportunity cost. Although the lunch has been paid for by his father, the
time spent at the lunch could have been used by Kamran to do something else. Kamran could
also have done something other than playing football. For example, he may have given up the
opportunity to go to the cinema. The opportunity cost of saving the $50 is spending it.

Four-part question
a Opportunity cost is the best alternative forgone.
b Opportunity cost is an important concept for producers because they have to decide how to
use the resources they employ. For instance, a soft drinks manufacturer may produce lemonade
or cola. In the short run, if it decides to produce more lemonade, it will have to switch some
workers, machinery and ingredients away from producing cola. In the long run, if the firm
employs more resources and devotes the extra resources to producing more lemonade, it will be
giving up the opportunity to produce more cola.
c The area near where an airport is being built may currently be farms or houses. The prospect of
the construction of the airport may reduce the value of the farmland and the houses due to the
expected noise and air pollution. At the same time, it may make the area more valuable to, for
example, firms wanting to operate hotels, firms producing goods for export and for the air travel
and freight industry. If it decides, for example, to demolish the farms or houses and build a hotel
on the site, the opportunity cost may now be using the site for a factory producing airline meals.

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