“Opportunity cost
is the value of the next-best alternative when a decision is made; it's what is given up
,” explains Andrea Caceres-Santamaria, senior economic education specialist at the St. Louis Fed, in a recent Page One Economics: Money and Missed Opportunities.
How useful is the concept of opportunity cost?
The concept of Opportunity Cost
helps us to choose the best possible option among all the available options
. It helps us to use every possible resource tactfully, efficiently and hence, maximize economic profits.
What is opportunity cost explain with example?
When economists refer to the “opportunity cost” of a resource, they
mean the value of the next-highest-valued alternative use of that resource
. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
Who gave the concept of opportunity cost?
The idea of an opportunity cost was first begun by
John Stuart Mill
. The utility has to be more than the opportunity cost for it to be a good choice in economics. For example, opportunity cost is how much leisure time we give up to work.
What is an example of opportunity cost in business?
Small businesses factor in opportunity costs
when computing their operating expenses in order to provide a bid or estimate on the price of a job
. For example, a landscaping firm may be bidding on two jobs each of which will use half of its equipment during a particular period of time.
What is an example of opportunity cost in your life?
A player attends baseball training to be a better player instead of taking a vacation
. The opportunity cost was the vacation. Jill decides to take the bus to work instead of driving. It takes her 60 minutes to get there on the bus and driving would have been 40, so her opportunity cost is 20 minutes.
What are the types of opportunity cost?
- Explicit Cost: This is an opportunity cost that involves a money payment and usually a market transaction. …
- Implicit Cost: This is an opportunity cost that DOES NOT involve a money payment or market transaction.
What is opportunity cost and its importance in decision making?
“Opportunity cost is
the cost of a foregone alternative
. If you chose one alternative over another, then the cost of choosing that alternative is an opportunity cost. Opportunity cost is the benefits you lose by choosing one alternative over another one.”
What are the characteristics of opportunity cost?
Opportunity cost is
the cost of taking one decision over another
. This cost is not only financial, but also in time, effort, and utility. Opportunity cost can lead to optimal decision making when factors such as price, time, effort, and utility are considered.
What are the features of opportunity cost?
An opportunity cost is defined as
the value of a forgone activity or alternative when another item or activity is chosen
. Opportunity cost comes into play in any decision that involves a tradeoff between two or more options. It is expressed as the relative cost of one alternative in terms of the next-best alternative.
Is opportunity cost a real cost?
Opportunity Cost Definition
Opportunity cost is the value of what you lose when you choose from two or more alternatives. … “
The real cost of any purchase isn't the actual dollar cost
. Rather, it's the opportunity cost—the value of the investment you didn't make, because you used your funds to buy something else.”
Can opportunity cost zero?
No, there can never be zero opportunity cost for anything
that we human beings do in this life. … Our opportunity cost when we choose a given action is the value of the next best thing that we could have done. Whenever we choose one action, we must by definition choose not to do some other action.
What is opportunity cost in international trade?
Opportunity cost refers
to what must be given up in order to obtain some item
. It requires calculating what one could have gotten if one produced another product instead of one unit of the given product.
Which scenario is the best example of opportunity cost?
The correct answer is a.
A computer company produces fewer laptops to meet tablet demand
. Opportunity cost defines the benefit obtained by having a commodity after forgoing some other commodity. In the problem statement, the computer company incurs an opportunity cost of laptops for tablets.
How does opportunity cost affect our life?
Opportunity costs can
impact various – and critical – aspects of your life
, including money, career, home and family, and other lifestyle elements. In general, it means having to choose one option over the other, be it money, time or lifestyle choices – and living with the consequences.
How opportunity cost is applied in our daily life?
They are applicable beyond finance and accounting. In daily life, opportunity costs are
the benefits or pleasures foregone by choosing one alternative over another
. For instance, if you decide to spend money eating out for dinner in a restaurant, then you forgo the opportunity to eat a home-cooked meal.
