Opportunity Cost: Christmas gift

Question:

Peter’s parents decide to buy a Christmas gift for him. They have several options and his order of preference is as follows:

First option: an electronic game console

Second option: a smartphone

Third option: a computer tablet

Explain whether the opportunity cost of choosing an online game console to Peter’s parents will necessarily remain unchanged

(a) Peter’s academic performance has been declining. (2 marks)

(b) Owing to the widespread of coronavirus, Peter is required to take the online courses in the home.  (3 marks)

Answer:

(a)

The net value of the first option, the electronic game console, falls. It does not affect the highest valued option forgone, the smartphone, and therefore cost remains unchanged. (3)

(b)

The value of the third option, the computer tablet, will increase and may exceed the value of the second option, smartphone. The highest valued option forgone may change from the second option to the third one. Cost may change. (3)