John's Budget Is Such That He Can Afford Either a Computer

question 132

Multiple Choice

John's budget is such that he can afford either a computer or a Caribbean vacation,both of which cost the same.Which of the following statements about his opportunity cost is correct?

• A)The opportunity cost of a Caribbean vacation is the money John pays for the vacation.
• B)The opportunity cost of the vacation is the same as the opportunity cost of the computer because John can afford only one or the other.
• C)There is nothing to say about the opportunity cost because we don't know how much the computer or the Caribbean vacation costs.
• D)The opportunity cost of going on a vacation is the loss from not being able to buy the computer.
• E)The opportunity cost of the computer is the total cost of the computer and the Caribbean vacation.

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Definitions:

Risk Profile

An evaluation of an individual's or organization's willingness to take risks, as well as their financial ability to manage the impact of those risks.

Incremental

Describing something as increasing or adding on, often in small or gradual steps.

Risk Analysis

The process of identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events.

Financial Option

A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date.