#economics #opportunitycostindecisionmaking
Definition of Opportunity Cost
Opportunity cost is the loss of the next best alternative when making a decision.
Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs.
There is an opportunity cost in the allocation of resources.
When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost).
When a producer decides to allocate all of their resources to producing electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost).
When a government decides to provide free school meals to all primary students in the country, they may be unable to fund some rural libraries which may have to close. The libraries represent the loss of the next best alternative (the opportunity cost).
The Influence of Opportunity Cost on Decision Making
An understanding of opportunity cost may change many decisions made by consumers, workers, firms & governments.
Factoring the opportunity cost into a decision often results in different outcomes & so a different allocation of resources.
Examples of How The Consideration of Opportunity Costs Can Change Decisions
What are the potential risks of ignoring opportunity costs when making personal or professional decisions?
How can understanding opportunity cost improve budgeting and financial planning?
In what ways can opportunity cost influence career choices and educational pursuits?
How do you weigh opportunity costs when faced with multiple investment options?
How can opportunity cost be applied to time management and prioritizing tasks?
How does opportunity cost play a role in business strategy and resource allocation?