Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It determines the maximum utility a consumer can achieve.
B
It helps consumers evaluate the trade-offs of different goods based on their budget constraints.
C
It allows consumers to ignore the impact of price changes on their purchasing decisions.
D
It only applies to luxury goods and not basic necessities.
Understanding the Answer
Let's break down why this is correct
Answer
Opportunity cost is the idea that when you make a choice, you miss out on other options. For example, if you decide to spend your money on a new video game instead of going to the movies, the opportunity cost is the fun you would have had at the movies. This concept ties into the income effect, which means that when prices change, your purchasing power changes too. If the price of the video game goes up, you might have to give up more things to afford it, making you think harder about your choices. Understanding opportunity cost helps consumers budget better by considering what they are giving up when they make spending decisions.
Detailed Explanation
Opportunity cost helps people think about what they give up when they buy something. Other options are incorrect because Some might think opportunity cost shows the highest satisfaction possible; It's a common mistake to think price changes don't matter.
Key Concepts
Opportunity cost
Price sensitivity
Income effect
Topic
Marginal Utility and Budgeting
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.