1.5 - BUSINESS CHOICES Flashcards
(7 cards)
What is opportunity cost?
Opportunity cost is the cost of choosing one option over another. It represents the value of the next best alternative foregone when a choice is made.
Why is opportunity cost important in business decision-making?
Because resources are scarce, businesses must make decisions under uncertainty. Opportunity cost helps measure the impact of choosing one course of action over another, ensuring better-informed decisions.
What are some real-world examples of opportunity cost?
Work/life choice: Choosing not to work an extra 10 hours per week could mean losing out on additional wages.
Government spending: Spending an extra £10 billion on the NHS might mean £10 billion less for education or defence.
Farmland use: Using farmland to grow biofuel crops means less land for food production, possibly raising food prices.
What is a trade-off in business?
A trade-off is when a business has to choose between two desirable outcomes, but can’t have both fully due to limited resources. Gaining more of one typically results in having less of the other.
How is a trade-off different from an opportunity cost?
Trade-off is the situation of choice between two options.
Opportunity cost is the value of what is sacrificed (the next best alternative) in that choice.
What are some examples of business trade-offs?
Choice –> Potential Trade-Off
Spending heavily on market research –> Less money available for advertising/promotions
Raising quality standards –> Higher costs due to extra quality control measures
Focusing on one market segment –> Limited or no investment in other segments
Why do trade-offs arise in businesses?
Because businesses operate with limited resources (e.g., money, time, labour), they must make decisions where choosing one option reduces their ability to pursue others.
