Cambridge IGCSE Economics
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Updated 13 October 2023
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1 Basic economic problem
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1 Basic economic problem
1.1 Nature of the economic problem
1.2 Factors of production
1.3 Opportunity cost
o 1.3.1 Definition of opportunity cost
o 1.3.2 The influence of opportunity cost on decision making
o 1.3 True or False Quiz
o 1.3 Review questions
1.4 Production possibility curve
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1.3.1 Definition of opportunity cost
1 Basic economic problem
1.3 Opportunity cost
1.3.1 Definition of opportunity cost
Unit 1.3.1 - Definition of opportunity cost
In this section of the Cambridge IGCSE syllabus, students need to be able to define opportunity cost and provide
examples of opportunity cost in different contexts.
Due to the basic economic problem of scarcity of resources and unlimited wants, sacrifices have to be made when
making decision. Opportunity cost can be defined as the cost of the next best opportunity that is sacrificed when making
a choice is made.
American economist and statistician Milton Friedman (1912 - 2006) famously said that “there’s no such thing as a free
lunch” (1975) meaning that it is not possible to get something for nothing because there is usually always an opportunity
cost when a decision is made. Hence, opportunity cost refers to the economic cost of choice.
Box 1 - Examples of opportunity cost
The opportunity cost of choosing to study Cambridge IGCSE Economics is another Cambridge IGCSE
subject that you could have chosen to study instead, such as History or Geography.
The opportunity cost of going to the cinema with your friends could be spending the money to go ice skating
with your friends instead.
The opportunity cost of purchasing a petrol-fuelled motor car is the option of purchasing an electric vehicle.
The opportunity cost of going to university for three years is the loss of earnings if the student had chosen to
work instead.
Choosing to purchase the latest Sony Playstation games console could mean having to give up (sacrifice)
the latest games console from Nintendo or Microsoft.
The opportunity cost of the government providing the unemployed with additional financial welfare during the
COVID-19 pandemic is the money that could have been spent on providing households with free lateral flow
tests.
Opportunity costs exist with almost all decisions
Opportunity cost is a vital concept in the study of Economics. Every choice made by economic agents (households, firms,
and governments) has an opportunity cost because, in most cases, there is an alternative option. The study of economics
assumes that decision makers try to act rationally in order to make optimal choices.
Return to the Unit 1.3 - Opportunity cost homepage
Return to the Unit 1 - Basic economic problem homepage
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