Theory question 103
Basic ConceptsSection B (answer three questions only from this section)
(a) Distinguish briefly but clearly between opportunity cost and money cost.
(b) Has the concept of opportunity cost any relevance to the economies of West African countries?
Show the model answer
(a) Opportunity cost (real cost) is the alternative forgone when a choice is made – the next best thing given up. Money cost is the amount of money paid for a good or service. Example: with N10 a student buys a textbook instead of a shirt; the money cost of the book is N10, its opportunity cost is the shirt.
(b) Yes, it is relevant:
- Governments with scarce resources must choose between projects (schools vs roads); opportunity cost guides budget priorities.
- Helps planners rank needs (scale of preference) and allocate resources efficiently.
- Firms choose what to produce and which factors to use.
- Households choose how to spend limited incomes.
- Helps in choosing between consumption now and investment for growth, and between producing for export or for home use.
Use an example in (a).