Question

You win $200 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 3% interest.
Which of the following is in the opportunity cost of putting the $200 in a bank account for one year?
The value you could obtain by spending the money now.

Answer 1

Answer:

A) The value you could obtain by spending the money now.

Explanation:

First, the multiple options for the question

A)The value you could obtain by spending the money now.

B) Nothing, because you won the money.

C) The $206 you would have a year from now.

The key to the question is to first understand the choices of the person that won the $200. The options are either to deposit the money in the bank in order to get interest rate of 3% or to go ahead and spend their winnings.

Opportunity Cost represents the benefit of the next best alternative you could have chosen, which you have to forego as a result of a chosen course of action.

Therefore, if the winner chooses to put the $200 in a  bank account , the next best alternative is to spend the money, hence the opportunity cost is the benefit the person would have derived by spending the money.