Basic Economic Problem · 3 question types
Past paper frequency (2018 to 2024)
This topic accounts for approximately 14% of your exam marks.
Opportunity cost and scarcity definitions appear on nearly every paper; consistently 4 to 6 marks in Q1 Part A context questions.
The exam often tests opportunity cost by applying it to a specific economic agent. The structure is always the same.
Consumers have a limited income. Spending on one good means giving up the next best alternative use of the same money.
Example — Maya has £40 of spending money this week. She buys a concert ticket for £40. The opportunity cost is the next best thing she would have spent the £40 on (for example a meal out and a book).
Producers have limited inputs (workers, machines, raw materials, factory space). Using them to make product A means they cannot make the next best alternative product B.
Example — A car factory's assembly line can be set up to build either electric SUVs or petrol hatchbacks but not both at once. Choosing to build electric SUVs has an opportunity cost equal to the petrol hatchbacks not made.
Workers have limited time and limited skills. Taking job A means giving up the next best alternative use of that time.
Example — Lara is offered two jobs. Job 1 pays £32,000 a year in an office she has to commute to. Job 2 pays £28,000 a year but is fully remote. If she takes Job 2, the opportunity cost is the higher pay of Job 1 plus the work experience she would have gained there. (Job 2's pay is not the opportunity cost — it is what she gets, not what she gives up.)
A government has a limited tax revenue. Spending on one programme means giving up the next best alternative use of those tax pounds.
Example — A government has £5 billion to spend and is choosing between building a new high-speed rail line or doubling primary-school funding. If it chooses the rail line, the opportunity cost is the improved primary-school provision that £5 billion could have paid for instead.