A homeowner has paid off the mortgage on his house and continues to live in the house. The interest income foregone by NOT selling the house and investing the proceeds is an example of a(n)

Question

Quizplus · Accepted Answer

The interest income foregone by not selling the house and investing the proceeds is an example of opportunity cost. Opportunity cost refers to the cost of forgoing the next best alternative. In this case, the opportunity cost is the return that the homeowner could have earned by investing the proceeds from the sale of the house. Since he has chosen to live in the house instead of selling it, he is foregoing the opportunity to earn interest income.

A Homeowner Has Paid Off the Mortgage on His House