Question

Kevin has $20 to spend on summer clothes. He is looking at shirts, shorts, and flip-flops. Shirts are $10, shorts are $15, and flip-flops are $10. Which of the following statements best describes the opportunity costs and benefits of buying a shirt?


Select the best answer from the choices provided.
A.
The opportunity cost is $10; the benefit is that he now has a shirt.
B.
The opportunity cost is that he cannot afford the shorts; the benefit is that he now has a shirt.
C.
The opportunity cost is $10; the benefit is that he saved $15.
D.
The opportunity cost is that he cannot afford the shorts or the flip-flops; the benefit is that he saved $10.

Answer 1

Answer:

Kevin has analyzed the situation well. However, he should also consider the fact that he saved $10 by only purchasing the shirt.

Opportunity cost is the cost of the forgone alternative. Out of the 3 choices, he only purchased 1 of the choices, the opportunity cost are the other two choices. However, he is still capable of buying the flip-flops costing $10 but he chose not to do so. He should consider it as a savings aside from it being a lost opportunity.