(a) Distinguish briefly but clearly between opportunity cost and money cost.

Answer Details

Opportunity cost is the real cost of a choice, measured as the next best alternative that is forgone (given up) when a decision is made. Because resources are scarce, choosing to use them for one purpose means sacrificing another. For example, if a farmer uses his land to grow maize, the opportunity cost is the yam he could have grown instead.

Money cost is the amount of money actually paid out or spent to acquire or produce a commodity, that is the monetary expenditure on the good or service. If a shirt is bought for N2,000, the money cost is N2,000.

The distinction: money cost is measured in naira and shows what is paid; opportunity cost is measured in terms of the alternative goods or satisfaction sacrificed and need not involve any money changing hands. Opportunity cost is the more fundamental economic concept because it captures the true sacrifice behind every choice.