Scarcity, Choice and Opportunity Cost: five questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
A worker earns $40 per hour. Rather than work, she decides to visit a museum for three hours. The visit costs a total of $40.
What is the opportunity cost of visiting the museum?
Answer: C.
The correct answer is C: $120.
Opportunity cost is the value of the best alternative sacrificed. The alternative to the museum visit was working, and three hours of work at $40 per hour would have earned $120. That forgone income is the opportunity cost of the time.
Why the other options are wrong:
Opportunity cost is the value of the best alternative sacrificed. The alternative to the museum visit was working, and three hours of work at $40 per hour would have earned $120. That forgone income is the opportunity cost of the time.
Why the other options are wrong:
- A, $40, is either one hour's pay or the museum's entry charge. The $40 admission is a money cost, not an opportunity cost; it is the price paid, whereas the opportunity cost is what was given up.
- B, $80, counts only two of the three hours.
- D, $160, adds the $40 entry charge to the $120 of forgone wages. This is the most tempting wrong answer, and it is worth being clear about why it is rejected: opportunity cost here is measured by the sacrificed alternative, the earnings, while the ticket price is the explicit cost of the chosen activity. The question asks specifically for the opportunity cost of visiting, which is the income the three hours would have generated.
Question 2
A doctor has very long working hours and a high level of stress. She can become a teacher instead of continuing as a doctor. What is the opportunity cost of choosing to continue as a doctor?
Answer: C.
Opportunity cost is the value of the NEXT BEST ALTERNATIVE given up, not the unpleasantness of the thing chosen.
She chooses to continue as a doctor, so what she gives up is being a teacher. The value of that forgone option is the potential salary as a teacher, which is C.
A and B are real costs of doctoring, tiredness, stress, the risk of illness, but they are costs of the option TAKEN, not of the one abandoned, so they are not opportunity cost. D is a cost she would incur only by switching, so it belongs to the alternative rather than being what she loses by refusing it.
She chooses to continue as a doctor, so what she gives up is being a teacher. The value of that forgone option is the potential salary as a teacher, which is C.
A and B are real costs of doctoring, tiredness, stress, the risk of illness, but they are costs of the option TAKEN, not of the one abandoned, so they are not opportunity cost. D is a cost she would incur only by switching, so it belongs to the alternative rather than being what she loses by refusing it.
Question 3
What is least likely to happen if a firm decides to increase automation and division of labour in its production process?
Answer: A.
Automation and a finer division of labour both do the same underlying thing: they raise output per worker. Once each worker produces more, the cost of producing each unit FALLS, which is the whole reason firms make the change. So an increase in cost per unit is the outcome least likely to appear, which is A. The other three are all plausible consequences. Productivity rising is essentially the definition of what has happened. Profits are likely to rise, because the same output now costs less to make. And even employment can increase, despite the machinery, if lower unit costs let the firm cut its price, sell substantially more, and staff up to meet the extra demand, unlikely, perhaps, but nothing like as unlikely as unit costs going UP when productivity has gone up.
Question 4
Which term assumes the existence of ‘qualities, knowledge and skills’ that allow an individual to be more productive?
Answer: B.
Human capital is the stock of skill, knowledge and health carried by people themselves, which is why education and training count as investment in it. The phrase quoted in the question describes precisely that: the qualities a person holds that make their labour more productive.
The other options sit elsewhere. Enterprise investment (A) is about funds put into a business. Mechanisation (C) raises productivity by adding machines, which is physical capital rather than anything belonging to the worker. Specialisation (D) raises productivity by narrowing what each worker does, so it is about the organisation of work rather than the qualities of the individual.
The other options sit elsewhere. Enterprise investment (A) is about funds put into a business. Mechanisation (C) raises productivity by adding machines, which is physical capital rather than anything belonging to the worker. Specialisation (D) raises productivity by narrowing what each worker does, so it is about the organisation of work rather than the qualities of the individual.
Question 5
The factors of production earn different rewards.
What identifies the correct economic term for these rewards?
Answer: D.
The correct answer is D: land earns rent.
Each factor of production has its own name for the reward it receives: land earns rent, labour earns wages, capital earns interest, and enterprise earns profit. Land earns rent because it is a payment for the use of a naturally occurring resource over a period of time.
Why the other options are wrong:
Each factor of production has its own name for the reward it receives: land earns rent, labour earns wages, capital earns interest, and enterprise earns profit. Land earns rent because it is a payment for the use of a naturally occurring resource over a period of time.
Why the other options are wrong:
- A pairs capital with surpluses. Capital earns interest; "surplus" is not one of the four factor rewards.
- B pairs enterprise with dividends. Enterprise earns profit. Dividends are a distribution of profit to shareholders, which makes this a plausible-sounding but imprecise answer, the entrepreneur's reward for bearing risk is profit itself.
- C pairs labour with interest, swapping the rewards of labour and capital. Labour earns wages.
What this practice covers
These questions are drawn from past CIE 9708 papers and filtered to scarcity, choice and opportunity cost. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on scarcity, choice and opportunity cost, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Scarcity means poverty.
- Scarcity means a temporary shortage.
- Opportunity cost is the chosen option.
- Opportunity cost is the price paid.
- Opportunity cost includes all rejected options.
- A free item has no opportunity cost.
- Borrowing removes government trade-offs.
- Growth eliminates scarcity.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Scarcity, Choice and Opportunity Cost revision notes.