The opportunity cost of an activity
a. depends on the individual’s subjective values and opinions
b. is the same for everyone
c. must be calculated and known before undertaking that activity
d. is irrelevant to decision making
The correct answer and explanation is:
Correct Answer: a. depends on the individual’s subjective values and opinions
Opportunity cost refers to the value of the next best alternative that is foregone when a choice is made. It plays a central role in decision-making because every action involves a trade-off. The reason the correct answer is that opportunity cost depends on an individual’s subjective values and opinions is that different people place different values on their time, resources, and preferences. What one person considers a valuable alternative might be less important to someone else.
For example, imagine two individuals deciding whether to spend the evening studying or going out with friends. One student may place a high value on academic success and see studying as the better use of time. The opportunity cost of going out for this student is the potential academic gain lost. Meanwhile, another student might highly value social interaction and stress relief, so their opportunity cost for studying could be missing out on important social bonds or relaxation. Thus, the cost is not the same for everyone and is shaped by what each person values most.
This subjective nature of opportunity cost means that it cannot always be precisely calculated. Instead, it is based on individual priorities, preferences, and situations. It also plays a key role in how people make choices in both economics and everyday life. Whether deciding how to spend money, allocate time, or invest resources, understanding opportunity cost helps individuals evaluate the real cost of their decisions. Therefore, opportunity cost is relevant to decision-making, varies among individuals, and reflects personal judgments about what is most valuable.