Answer to Question #278864 in Economics of Enterprise for aneessheikh

Question

What is opportunity cost of spending the $100 now? Explain

Answer 1

The opportunity cost of spending the $100 now is what you give up to get it. The opportunity cost of spending the $100 is how much money you would have a year from now had you decided not to spend the money. With an interest of 5% you would have $100*1.05=$105 in a year. Thus, you are giving up $105 for the good you are buying today.