Question

Manuel is training for a triathlon, a timed race that combines swimming, biking, and running.

Consider the following sentence: In order to swim for an hour, Manuel must take time away from work, where he earns $12 per hour. This is in addition to paying a $4 entrance fee for the pool.

Which basic principle of individual choice do these statements best illustrate?

1) The cost of something is what you give up to get it

2) Markets are usually a good way to organize economic activity

3) People usually exploit opportunities to make themselves better off.

4) Trade can make everyone better off

Answer 1

1) The cost of something is what you give up to get it

As you can see, there is always a tradeoff between two activities, if an individual opts for one activity, she has to leave the other. The other activity may involve a cost. Here earning money in each hour of working becomes the cost of not doing the work because not doing the work (for doing something else) will leave the individual with a money that is $12 less for each hour. This is the opportunity cost which is the amount of sacrifice made, the cost of forgone alternative.