Opportunity Cost is the next best alternative that is forgone while making a decision.
Examples:
Consumer has a choice to either buy a chocolate or a pen and if he/she chooses a chocolate then buying a pen becomes the opportunity cost.
Apple has a choice to produce more iPads or iPhones and if they chose to produce more iPhones, producing iPads becomes the opportunity cost.
If a worker has option to chose either for working more hours or have more leisure time, if he chooses to work for more hours than leisure time lost is the opportunity cost.
If the government has choice to build either a school or a hospital and if they choose to build a school than building a hospital becomes the opportunity cost.
If a student has choice between selecting Economics or History and if chooses Economics then History becomes the opportunity cost.
Exemplar Questions
Explain the possible opportunity cost to India of exporting more textiles. (4 marks)
Opportunity cost is the (next) best alternative (1) forgone (1).
Textiles that have been exported might have been sold on the home market (1) may have increased choice (1) lowered price (1).
Resources may have been moved to producing the textile exports / resources used to produce textiles could have been used to produce other products (1) output / exports of other products may have been reduced (1) these products may provide more revenue / lose revenue from not exporting these products (1).
Explain why the opportunity cost of becoming a teacher for one worker may be greater than for another worker. (4 marks)
Opportunity cost is the (next) best alternative (1) forgone (1).
One worker may have earned more than another (1) and so would be giving up more earnings (1).
One worker may give up more non-wage benefits (1) example e.g. promotion chances (1).
One worker has further to travel to work / higher costs of travelling (1) loss of leisure time / time with family / lower net income (1).
What may be the opportunity cost of building an airport? (2 marks)
Opportunity cost is the (next) best alternative foregone (1).