Question 1
Q1A city council is debating whether to fund a new public library or to repair existing city roads. The total budget allows for only one of these projects to be fully funded this year. This situation is a classic example of which fundamental economic principle?
Show answer & explanation
Correct answer: B
Opportunity cost is the value of the next-best alternative that must be forgone to pursue a certain action. In this case, the opportunity cost of building the library is the benefit that would have been gained from repairing the roads, and vice-versa. The city must choose one, sacrificing the other, due to the economic principle of scarcity.