Choice and Opportunity Cost

 

 

What Are Choice and Opportunity Cost?

Resources such as money, land, labour, and machines are limited, so people must make choices about how to use them.

• Individuals choose how to use their money (spend or save).
• Businesses choose how to use workers and machines.
• Governments choose how to use resources to benefit the largest number of people.

When you choose one option, you give up the next best option.

🔹 Opportunity cost is the benefit that is lost when one choice is made instead of another.
Example:
If land is used to build a hotel, it cannot be used for farming. The lost farming benefit is the opportunity cost.

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Advantages and Disadvantages of a Market Economy

Advantages of a Market Economy

• Goods and services are produced to meet people’s demand
• Businesses try to be efficient to increase profits
• People are motivated to work harder to improve their standard of living
• Higher productivity helps the whole economy grow
• Competition encourages innovation and new technology

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Disadvantages of a Market Economy

• Businesses focus on profit, not essential services like public health or education
• Some workers may be paid very low wages
• People who cannot work (e.g. due to disability) may be excluded
• Businesses may overproduce goods they cannot sell
• Environmental costs, such as pollution, may be ignored

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Key Vocabulary (Grade 7)

• Choice: Selecting one option from several possibilities
• Opportunity cost: What you give up when you make a choice
• Productivity: How efficiently goods and services are produced
• Competition: Businesses trying to attract customers