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 farmer sells land used for crops to a firm that will use the land for wind turbines to produce electric power. What is the opportunity cost of this decision by the farmer?
Answer: B.
The correct answer is B: the loss of revenue from crops that grow on the land.
Opportunity cost is the best alternative given up. By selling the land for wind turbines, the farmer gives up the use of that land for growing crops, and the sacrifice is the revenue those crops would have generated. The land can serve one purpose or the other, not both.
Why the other options are wrong:
Opportunity cost is the best alternative given up. By selling the land for wind turbines, the farmer gives up the use of that land for growing crops, and the sacrifice is the revenue those crops would have generated. The land can serve one purpose or the other, not both.
Why the other options are wrong:
- A, the cost of installing the turbines, is a cost borne by the firm buying the land, not a sacrifice made by the farmer. The question asks specifically about the farmer's decision.
- C, the profit made from selling the land, is what the farmer gains. Opportunity cost is always the loss, never the benefit, and this is the option that most often catches students, because the sale proceeds are the most conspicuous figure in the scenario.
- D, the reduced cost of producing renewable energy, is a benefit to society and to the energy firm. Again a gain rather than a sacrifice.
Question 2
A government allowed a building company to construct new houses which destroyed an area designated as an area of natural beauty. Which concepts can be applied to this statement?
Answer: B.
The correct answer is B: external cost and opportunity cost.
Both concepts appear in the scenario.
External cost is illustrated by the destruction of an area of natural beauty. That loss falls on the wider community, walkers, residents, future generations, who are not party to the transaction between the government and the building company. A cost borne by third parties is a negative externality, and it means the social cost of the houses exceeds the private cost the builder pays.
Opportunity cost is illustrated by the choice itself. The land can be houses or natural beauty, not both, so building the houses means giving up the landscape. That forgone alternative is the opportunity cost of the decision.
Why the other options are wrong:
Both concepts appear in the scenario.
External cost is illustrated by the destruction of an area of natural beauty. That loss falls on the wider community, walkers, residents, future generations, who are not party to the transaction between the government and the building company. A cost borne by third parties is a negative externality, and it means the social cost of the houses exceeds the private cost the builder pays.
Opportunity cost is illustrated by the choice itself. The land can be houses or natural beauty, not both, so building the houses means giving up the landscape. That forgone alternative is the opportunity cost of the decision.
Why the other options are wrong:
- A includes a budget surplus. Nothing in the scenario concerns government revenue exceeding spending. (Public sector does feature, since the government granted permission, but both halves must be right.)
- C includes a government subsidy. The government gave permission, not money, no payment is mentioned.
- D includes a budget deficit, which again is not raised. Private enterprise is present in the building company, but the second half fails.
Question 3
A student has nothing to do on a Friday evening. She withdraws $5 from the $100 she has in a savings account and buys a present to take to a party, to which admission is free. What does this involve?
Answer: B.
The correct answer is B: an opportunity cost equal to other goods she could have bought for $5.
Opportunity cost is the best alternative given up. She has spent $5, so what she has sacrificed is whatever else that $5 could have bought, or the future consumption it would have funded had it stayed in the savings account. The amount actually spent is what sets the size of the sacrifice.
Why the other options are wrong:
Opportunity cost is the best alternative given up. She has spent $5, so what she has sacrificed is whatever else that $5 could have bought, or the future consumption it would have funded had it stayed in the savings account. The amount actually spent is what sets the size of the sacrifice.
Why the other options are wrong:
- A, an opportunity cost equal to $95, refers to the money remaining in the account. That $95 has not been given up, she still has it, and it is available for future use.
- C claims there is no opportunity cost because entry to the party is free. The admission may be free, but the present was not: $5 of scarce purchasing power has genuinely been surrendered. Free entry does not make the evening costless.
- D claims there is no opportunity cost because she had no better use for her time. This confuses two separate resources. Even if the time had no valuable alternative use, which is the claim "nothing to do" is meant to support, the money certainly did. Two things are being allocated here, and only one of them was idle.
Question 4
A person can make 10 items to sell on a craft stall in a day. What is the opportunity cost if the person decides to paint a picture instead?
Answer: A.
The correct answer is A: 10 craft items.
Opportunity cost is the best alternative given up, measured in the thing sacrificed. A day spent painting a picture is a day not spent making craft items, and the person could have made 10 of them in that time. So the opportunity cost of the picture is those 10 craft items.
Why the other options are wrong:
Opportunity cost is the best alternative given up, measured in the thing sacrificed. A day spent painting a picture is a day not spent making craft items, and the person could have made 10 of them in that time. So the opportunity cost of the picture is those 10 craft items.
Why the other options are wrong:
- B, the cost of the materials for the craft items, is a money cost that will not now be incurred at all, since the items are not being made. Opportunity cost is what is forgone, not an expense avoided.
- C, the cost of the paint for the picture, is a money cost of the chosen activity. This is the standard confusion: the price of what you buy tells you how much you spent, while the opportunity cost tells you what you gave up doing.
- D, the value of the picture, is what has been gained. Opportunity cost is always the loss, never the benefit.
Question 5
A farmer reduces the land used to grow wheat from 80 hectares to 60 hectares and increases the use of the land for growing potatoes from 80 to 100 hectares. What is the opportunity cost of this change?
Answer: B.
The correct answer is B: the output from 20 hectares used for growing wheat.
Opportunity cost is what has been given up to obtain something. The farmer has taken 20 hectares out of wheat (from 80 down to 60) and put them into potatoes (from 80 up to 100). What is sacrificed is the wheat that those 20 hectares would have produced. The gain is potatoes; the cost is wheat.
Why the other options are wrong:
Opportunity cost is what has been given up to obtain something. The farmer has taken 20 hectares out of wheat (from 80 down to 60) and put them into potatoes (from 80 up to 100). What is sacrificed is the wheat that those 20 hectares would have produced. The gain is potatoes; the cost is wheat.
Why the other options are wrong:
- A names the output from 20 hectares of potatoes. That is the benefit obtained, not the cost. Opportunity cost is always measured in the good given up.
- C names the output from 60 hectares of wheat. Those 60 hectares are still growing wheat, so nothing about them has been sacrificed. Only the change matters.
- D names the output from 80 hectares of potatoes, which was the original potato acreage, again unchanged and therefore not a cost.
What this practice covers
These questions are drawn from past Cambridge IGCSE papers and filtered to 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 opportunity cost, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Defining opportunity cost as "what you gave up" without saying next best.
- Listing every alternative rather than the single best one.
- Giving the answer in money when the question wants the forgone item.
- Confusing money cost with opportunity cost.
- Saying a choice has no opportunity cost simply because it was free of charge.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: Opportunity Cost revision notes.