Opportunity Cost and Free Goods
What Is Economics? Scarcity, Choice, and Economic Models
Syllabus requirement
Explains the cost of any choice in terms of the next-best alternative foregone and distinguishes free goods from economic goods.
Summary
This topic explains opportunity cost — the value of the next best alternative forgone when a choice is made — and distinguishes economic goods from free goods. It shows that because resources are scarce, every choice involves a trade-off and most goods require scarce resources to produce. Free goods are described as abundant items that do not require scarce resources and so have no opportunity cost, but the text warns many seemingly free items actually have costs. Understanding opportunity cost helps decision-makers compare alternatives and use resources more effectively.
