Tomas is a freelance graphic designer with one free afternoon this Saturday. He has three possible ways to use it: - Take on a paid design job for a local bakery, which would pay him $70 for the afternoon. - Design a free flyer for an animal-shelter charity he volunteers for, wh…

Answer: ((a)) Tomas's afternoon consists of a fixed number of hours, and however he spends them, that same time cannot be used for the bakery job, the charity flyer and resting all at once. Because the total time available is limited while he has several different things he could do with it,… ((b)) The opportunity cost is the $70 Tomas could have earned designing for the bakery. Of the two alternatives he gives up, the bakery job and resting, the bakery job is the more valuable one, so it is his true next best alternative; resting has no monetary value and is not paid work… ((c)) In part (b) the opportunity cost was $70. The second time, the next best paid alternative is the new $120 offer rather than the bakery's $70, so the opportunity cost of choosing the flyer has risen to $120. This shows that opportunity cost is not a fixed feature of a particular…. Part (a): Time as a scarce resource Tomas has only one afternoon this Saturday, a fixed and limited amount of time. Whatever he decides to do with it, that same time cannot simultaneously be used for the bakery job, the charity flyer and r…

IGCSE Economics 0455: How Opportunity Cost Changes Over Time

Tomas is a freelance graphic designer with one free afternoon this Saturday. He has three possible ways to use it:

Take on a paid design job for a local bakery, which would pay him $70 for the afternoon.
Design a free flyer for an animal-shelter charity he volunteers for, which pays him nothing.
Simply rest, doing no design work at all.

Tomas chooses to design the free flyer for the animal shelter.

(a) Explain why Tomas's afternoon is a scarce resource, even though it is not bought or sold in the way that money is. [2]

(b) State and justify the opportunity cost of Tomas's decision to design the flyer for the animal shelter. [2]

(c) The following Saturday, the bakery offers Tomas $70 again, but this time a different local business offers him $120 for the same afternoon slot instead. Tomas again chooses to design a free flyer for the animal shelter. Explain how the opportunity cost of this second decision compares with the opportunity cost found in part (b), and what this shows about opportunity cost in general. [4]

Part (a): Time as a scarce resource

Tomas has only one afternoon this Saturday, a fixed and limited amount of time. Whatever he decides to do with it, that same time cannot simultaneously be used for the bakery job, the charity flyer and resting; choosing one means the others cannot also happen in that same slot. Because the total time available is fixed while there are multiple things Tomas could use it for, his afternoon is scarce in exactly the same sense as a limited sum of money is scarce, even though no one buys or sells it directly.

Part (b): The opportunity cost of choosing the flyer

By spending the afternoon on the charity flyer, Tomas gives up two other options: the $70 bakery job and simply resting. Comparing what each of these is worth, the $70 bakery job is clearly the more valuable alternative, so it, not resting, is Tomas’s genuine next best alternative. The opportunity cost of designing the flyer is therefore the $70 he could have earned from the bakery.

Part (c): How the opportunity cost changes a week later

The second Saturday, Tomas again faces a choice between the flyer and paid work, but the paid alternatives on offer have changed: the bakery still offers $70, but a different business now offers $120 for the same slot. Comparing the two paid options, $120 > $70, so the new business’s offer is now Tomas’s most valuable alternative.

By again choosing to design the flyer, Tomas this time gives up the $120 offer rather than the $70 bakery job, so the opportunity cost of his decision has risen from $70 (in part (b)) to $120. Tomas’s own choice, to design the charity flyer, has not changed at all between the two Saturdays, but the opportunity cost of making that choice has changed, because opportunity cost is measured against whatever the next best alternative happens to be worth at the time, not against some fixed value attached permanently to the decision itself. This also means the decision is not automatically “wrong” simply because it now carries a larger opportunity cost: Tomas may still judge that the value he gets from supporting the animal shelter outweighs even $120.

Final answers

(a) Tomas’s afternoon is a fixed, limited amount of time, so using it for one activity rules out using the same time for another, making time itself a scarce resource.
(b) The opportunity cost is the $70 bakery job, his true next best alternative, not the unpaid option of resting.
(c) The opportunity cost rises from $70 to $120 because the next best alternative available has changed; this shows opportunity cost depends on the best alternative available at the time, not on the decision itself.