A village council owns a plot of land. It could build a school, a market or a park on it. It values the school most, the market next and the park least, and it builds the school. Which statement about the opportunity cost of the school is correct?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → It is the market, the next best use that is given up.
The opportunity cost of a choice is the gain forgone from the second best use. The council values the market next after the school, so the market is what it gives up.
Option (1) It is the park, the use the council values least. — Incorrect. The park is the third choice. Only the next best use counts.
Option (2) It is the market, the next best use that is given up. — Correct. The market is the second best use of the land.
Option (3) It is nil, as the land already belongs to the council. — Incorrect. The land could have been used for a market, so something is given up. Opportunity cost applies to the society too.
Option (4) It is the money spent on building the school. — Incorrect. This is money paid, not the alternative given up.
NCERT (2026-27): “Production Possibility Frontier … If more of the scarce resources are used in the production of corn, less resources are available for the production of cotton and vice versa. Therefore, if we want to have more of one of the goods, we will have less of the other good. Thus, there is always a cost of having a little more of one good in terms of the amount of the other good that has to be forgone. This is known as the opportunity cost of an additional unit of the goods.” “Note that the concept of opportunity cost is applicable to the individual as well as the society. The concept is very important and is widely used in economics.” Glossary: “Opportunity cost – of some activity is the gain foregone from the second best activity.” |