Opportunity Cost

Opportunity Cost - Lecture 3 Notes Opportunity Cost o...

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Lecture 3 Notes Opportunity Cost o Definition: Represents the value of the best possible alternative that is given up in the decision to use a resource o The sum of all that is lost from taking one course of action over another o Is a fundamental concept in economics o When making an economic decision you must consider not just what we are gaining but also what we stand to lose Example: Suppose you have $2000 and there are three things that you would like to do, each one will cost exactly $2000 (the direct cost) o Take a trip to the Bahamas o Go on a shopping spree o Finance yourself to spend time working in Africa for a volunteer organization o If you choose the trip to the Bahamas the opportunity cost of your vacation is based on the satisfaction from the “next best” alternative use of the money. The opportunity cost of your vacation is either the satisfaction obtained from the shopping spree or from helping a less developed community but not both since you can do only one of the other. The
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This note was uploaded on 02/05/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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