Sophie has been saving money for several months to buy something she really wants. She would like to buy a new bike but would also like to buy an MP3 player. The bike costs more than the MP3 player. Sophie chooses to buy an MP3 player. What is the opportunity cost?

Question

(1 point)
Responses

the actual cost of the iPod
the actual cost of the iPod

the amount of money she saved by buying the iPod instead of the bike
the amount of money she saved by buying the iPod instead of the bike

the amount of money she must save to now buy a new bike
the amount of money she must save to now buy a new bike

the bike

Answer 1

The opportunity cost is defined as the value of the next best alternative that is foregone when a choice is made. In this case, Sophie chose to buy the MP3 player instead of the bike. Therefore, the opportunity cost of buying the MP3 player is:

the bike

This is because the bike is the next best alternative that Sophie is giving up by choosing to purchase the MP3 player instead.