International Baccalaureate (IB) Practice Exam

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What concept is best explained by the statement, "Money spent here cannot be spent there"?

  1. Law of diminishing return

  2. Opportunity cost

  3. Significant purchases

  4. Delayed gratification

The correct answer is: Opportunity cost

The concept that is best explained by the statement, "Money spent here cannot be spent there," is opportunity cost. Opportunity cost refers to the value of the next best alternative that must be forgone when making a choice. In this case, if money is spent on one option, that same money is not available to be spent on another option, which highlights the idea that every choice has an associated cost of the alternatives that are given up. Understanding opportunity cost is crucial in economics and personal finance, as it emphasizes the trade-offs involved in any financial decision-making. This reveals how limited resources, like money, necessitate making choices that ultimately lead to sacrifices of other potential benefits.

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