Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of
A) opportunity costs.
B) marginal benefits that exceed marginal costs.
C) imperfect information.
D) normative economics.

Question

Quizplus · Accepted Answer

The economist's analysis is based on the concept of opportunity cost, which refers to the value of the best alternative forgone when a decision is made. In this case, the opportunity cost is the 3 percent return that Joe could have earned on the $1,000 if he had invested it in a bank certificate of deposit instead of buying the gold coins. By not considering the opportunity cost, Joe underestimated his true financial gain or loss.

Joe Sold Gold Coins for $1,000 That He Bought a Year