Question
Why would it be a mistake to treat opportunity costs and explicit monetary costs as identical?
a. Because of existence of efficient markets.
b. Because opportunity costs are different for different goods.
c. Because there are trade-offs involved in any decision.
d. Because sometimes the market does not function well.
a. Because of existence of efficient markets.
b. Because opportunity costs are different for different goods.
c. Because there are trade-offs involved in any decision.
d. Because sometimes the market does not function well.
Ask by Simpson Barber. in the United States
Mar 21,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The mistake is that every decision involves trade-offs, so treating opportunity costs and explicit monetary costs as the same ignores these trade-offs.
Solution
- An explicit monetary cost refers to the actual cash outlay required for a decision.
- The opportunity cost is the benefit you forego by not choosing the next best alternative.
- Treating both costs as identical ignores the fact that every decision involves trade-offs: while one alternative is chosen, the benefit of the unchosen alternative is lost.
- Thus, the mistake lies in not recognizing these trade-offs, which are central to the concept of opportunity cost.
The correct answer is:
c. Because there are trade-offs involved in any decision.
c. Because there are trade-offs involved in any decision.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Extra Insights
Treating opportunity costs and explicit monetary costs as the same can lead to flawed decision-making. Opportunity costs represent the benefits you forego when choosing one option over another, while explicit costs only account for the direct monetary expenses involved. Ignoring this difference may cause individuals or businesses to undervalue alternatives and miss out on more beneficial opportunities!
Additionally, recognizing trade-offs is essential in economic decision-making. Every choice comes with sacrifice—wherein selecting one path means giving up another. By understanding both opportunity and explicit costs, you can create a well-rounded view of the potential benefits and detriments, ultimately leading to smarter choices. Remember, the best decision considers both the tangible, immediate costs and the broader implications of what you might be giving up!
