Answer to Question #249372 in Economics of Enterprise for Seems

Question

You win Rs 10,000 in a horse race. You have a choice between spending the money now and putting it in a 5% FD. What is the opportunity cost of spending the Rs 10,000 now?

Answer 1

You win Rs 10,000 in a horse race. You have a choice between spending the money now and putting it in a 5% FD. What is the opportunity cost of spending the Rs 10,000 now?

Opportunity cost is the value of the best alternative while making a choice. The scarce nature of the resources makes people make choices between alternatives.

The individual has two alternatives available; either spending the money or putting it in an FD. If the individual puts the money in the FD, he will earn interest. Therefore the opportunity cost of spending the money now is the interest that could have been earned by putting it in FD.