Find opportunity cost in real choices
Identify the next-best feasible alternative forgone by consumers, workers, firms and governments.
Cambridge IGCSE Economics 0455 / IGCSE (9–1) Economics 0987, 2027–2029 Version 1. Apply each model to the stated evidence and qualify conclusions where effects depend on context. Practice is original and self-checked; it is not a Cambridge paper, mark scheme or official grade.
Before you begin
- No prior economics study is assumed. Read the scenario for the decision-maker, the market or economy involved, the time period and the evidence supplied.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Which detail is needed to identify opportunity cost?
What you will learn
- Define opportunity cost
- Identify the next-best alternative
- Explain how opportunity cost affects decisions
Only the next-best alternative counts
Opportunity cost is the value or benefit of the next-best alternative forgone when a choice is made. It is not every rejected option added together, and it can be non-monetary, such as leisure or study time.
First list feasible alternatives and the decision-maker's ranking. An option that was unavailable is not an opportunity cost; the selected option is not its own opportunity cost.
Apply it across decision-makers
A consumer gives up another purchase, a worker may give up leisure, a firm may forgo another investment and a government may give up another public service.
The alternative's benefit is often estimated rather than known exactly. Explain whose decision it is and why the alternative is next best.
Pause and explain
A worker chooses a paid shift over their next-best option, a family event. What is the opportunity cost?
Worked example
A council ranks a clinic first, a library second and a sports centre third. It builds the library. What is the opportunity cost?
Show the worked solution
- List the feasible ranked projects.
- Exclude the chosen library.
- Select the highest-ranked forgone project.
Answer The clinic's expected benefit is the opportunity cost, because it was the next-best forgone project.
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Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A household chooses a laptop over its next-best purchase, a bicycle. Explain its opportunity cost.
Give me a hint
Use the next-best option, not all purchases the household considered.
Compare my reasoning
- The household chooses the laptop.
- The bicycle ranks next among feasible options.
- Its expected benefit is forgone.
The opportunity cost is the benefit the household expected from the bicycle, its next-best feasible alternative.
Look for these in your work
- Choice identified
- Ranking used
- Forgone benefit stated
A worker can earn $80 for a shift or attend a family event they value at $60. If the shift is chosen and no other options rank higher, identify the opportunity cost and distinguish it from the wage.
Give me a hint
The wage is a gain from work; opportunity cost is what the worker gives up.
Compare my reasoning
- The $80 is income from the chosen shift.
- The family event is the next-best forgone option.
- Its valued benefit is the opportunity cost.
The opportunity cost is the $60-valued family event, while $80 is the shift's wage benefit. A net comparison may consider both, but they are different concepts.
Look for these in your work
- Wage classified as benefit
- Next-best option named
- Concepts distinguished
A government funds flood defences instead of a school. Explain what information is needed before calling the school the opportunity cost.
Give me a hint
The school must be feasible and ranked next, not merely another rejected idea.
Compare my reasoning
- Check that both projects were feasible within the budget.
- Establish which alternative ranked next to flood defences.
- Use the expected benefit of that project as the opportunity cost.
The school is the opportunity cost only if it was feasible and the next-best alternative. Otherwise, the government should identify the actual next-ranked project and its expected benefit.
Look for these in your work
- Feasibility checked
- Ranking checked
- Conditional conclusion
Common mistakes
- Adding the benefits of all rejected options
- Using a cost that was not feasible
- Naming money spent rather than the alternative benefit forgone
What can you explain now?
What does opportunity cost measure?
Compare with the explanation
The benefit of the next-best feasible alternative forgone
It focuses on one ranked alternative.
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Make it stick
What does opportunity cost measure?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.