Economics and Finance Key Concepts: Opportunity Cost, Assets, and Budget Management
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11 Terms
What is an opportunity cost?
The value of the next best alternative you give up.
Why are opportunity costs important in finance?
Every decision sacrifices alternatives, affecting value.
What is a sunk cost?
A cost already incurred that cannot be recovered.
Should sunk costs affect future decisions?
No, decisions should be based only on future costs and benefits.
What is an asset?
Anything with economic value that can be converted to cash.
What are the three roles of assets?
Store wealth, create income, reduce expenses.
What is a capital gain?
When an asset is sold for more than its purchase price.
What is a capital loss?
When an asset is sold for less than its purchase price.
What is a budget deficit?
Expenses exceed income.
What is a budget surplus?
Income exceeds expenses.
What are the three ways to address a budget deficit?
Increase income, reduce expenses, or borrow.
Note 
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