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Opportunity Cost

Opportunity Cost - The Concept of Opportunity Cost...

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9/1/11 The Concept of Opportunity Cost Scarcity (time, money)-choice-Opportunity Cost they lead to each other Opportunity cost (implicit cost)- what I have up by not picking B, nonmonetary cost that you are still feeling The true cost of any choice we make is the highest value alternative what we gave up or gained by picking one and not the other, what you gave up (sacrifice you made) Pick choice and then next best alternative, ignore all others Opportunity cost can be something that you would forgo, in the future-by not going to college that could happen Explicit cost -out of pocket costs to that you Add opportunity cost and you get total economic cost The economic question for the economy as a whole Scarcity Resources (Labor, land, capital) Choice Healthcare, education, entertainment Opportunity Cost as a result, how much of the other goods you have to give up Usefulness of economic models Simple easy-to-understand representations of a complex system Enhance understanding of structure of economy Enhance understanding of scarcity and choice o – the basis of economics – as well as economic growth and international trade The production possibilities frontier
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