Consumer Choices And Opportunity Cost

Activity

Consumer Choices And Opportunity Cost

One of the key problems faced by consumers is that they are unable to aff ord every INFORMATIONThis is a Ready-Ed Publications' good and service that they would like to buy. Decisions therefore need to be made about which wants to satisfy immediately and which to give up or delay. Those things that consumers choose to give up are referred to as the ‘opportunity cost’ because by spending their money on one thing, they have lost the opportunity to buy something book preview. else. For example, imagine that a person who has only $20 left to spend is choosing between going to the movies that day and buying grocery items for the family’s evening meal. If he/she chooses to go to the movies then the ‘opportunity cost’ will be dinner for the family. If he/she chooses to provide dinner for the family then the ‘opportunity cost’ will be the movie. Every consumer choice has positive or negative outcomes. When making a decision it is necessary to look at all the benefi ts and costs that go along with each choice. The best choices are the ones that result in the most benefi ts and the fewest costs. Wise consumers use this process to help prioritise their needs and wants. They understand that the decisions that they make can have a signifi cant impact on their quality of life.

Go to www.readyed.net.

1.

Defi ne the term ‘opportunity cost’.

_____________________________________________________ 2. Identify the ‘opportunity cost’ in each of the following scenarios.

OPPORTUNITY COST

George had $1. It costs him $1 to take the bus from school to his house. It is hot at lunch-time so he uses his $1 to buy an ice cream. Lucy’s parents gave her the choice of having a birthday party or going to see her favourite band in concert. Lucy chose to go to the concert.

3.

Discuss the benefi ts and costs associated with each of George and Lucy’s choices. Do you think that they made the best choices? Explain.