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Reservation Option (Fallback Option)
The reservation option, also called the fallback option, is the next best alternative available when making a choice. This option is considered to be held 'in reserve' in case the preferred choice becomes unavailable. For instance, if a concert sells out, the reservation option would be the alternative action one would take, such as babysitting.
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Economics
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Introduction to Microeconomics Course
CORE Econ
Social Science
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Related
Karim's Dilemma in the Work-Leisure Choice
Consumption as the Opportunity Cost of Free Time
The Work-Leisure Dilemma: Scarcity and Trade-offs
Reservation Option (Fallback Option)
A student has a free Saturday afternoon and is deciding what to do. Their first choice is to attend a football game. If they don't go to the game, their next-best alternative is to work a 4-hour shift at the campus library, earning $15 per hour. They also have a third option of mowing a neighbor's lawn for a total of $40. What is the opportunity cost of attending the football game?
Freelancer's Project Choice
A person decides to spend their evening attending a concert. Their next-best alternative was to work a shift that would have paid them $60. A third option was to study for an exam, an activity they value at $40. The opportunity cost of attending the concert is $100 (the sum of the values of the two forgone alternatives).
Internship vs. Summer Job
Match each scenario with its correct opportunity cost.
A policy analyst argues that the observed gap in average paid work hours between men and women is caused entirely by the gap in their average wages. They conclude that equalizing wages will, by itself, eliminate the hours gap. Which statement provides the strongest economic evaluation of this conclusion?
A student pays $50 for a non-refundable ticket to a music festival. On the day of the festival, a friend offers them a free ticket to a championship basketball game. The student values attending the basketball game at $80. If the student can only attend one event, what is the opportunity cost of choosing to go to the music festival?
Business Investment Decision Analysis
Entrepreneur's Economic Profit Calculation
City Council's Budget Decision
Learn After
Analyzing a Labor Supply Decision
A student plans to attend a free outdoor concert on Saturday. If the concert is cancelled due to rain, their next best plan is to work a tutoring session for which they will be paid $40. They also considered visiting the library, but they would prefer tutoring over going to the library. Based on this information, what is the student's reservation option?
Identifying the Reservation Option
A company that produces a unique type of electric scooter maximizes its profit by selling 1,000 scooters per month at a price of $2,000 each. The cost to produce one additional scooter is $1,200. There is a group of potential buyers who value a scooter at $1,500 but do not purchase one at the current price. Based on this information, which statement best analyzes the economic efficiency of this market outcome?
A student's first choice for Friday night is to attend a basketball game. If tickets are unavailable, their second choice is to go to a party. Their third choice is to watch a movie at home. True or False: The student's reservation option is watching a movie at home.
An individual receives a job offer from Company A for $60,000 per year, which is their preferred choice. They also have a standing offer from Company B for $55,000 per year, which they will accept if the negotiations with Company A fail. Before making a final decision, Company B unexpectedly increases its offer to $58,000. How does this change in the second offer affect the individual's situation regarding Company A?
Evaluating Bargaining Power
A community relies on a shared, open-pasture for grazing cattle. Each farmer decides how many of their own cattle to graze based on their private costs and benefits, without factoring in that each additional animal degrades the pasture's quality for all other farmers. This has led to severe overgrazing. Which of the following policy interventions best addresses the fundamental cause of this problem by altering the payoffs for individual farmers?
For each scenario, match the decision-maker's situation with their correct reservation option.
A freelance software developer is considering a contract to build a mobile app for a client, which would pay $15,000 and take one month to complete. If the developer declines this contract, their most preferred alternative is to work on two smaller projects simultaneously, which would earn a total of $12,000 in the same month. Another option is to spend the month updating their personal portfolio and learning a new programming language, an activity they value at approximately $9,000 for their future career prospects. Given this information, which of the following statements correctly analyzes the developer's situation?