Opportunity cost

Opportunity cost - Opportunity cost. In addition to...

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Unformatted text preview: Opportunity cost. In addition to displaying the economy's efficient production possibilities, the PPF is also used to illustrate an important concept in economic analysis called opportunity cost. The opportunity cost of a decision or choice that one makes is the value of the highest valued alternative that could have been chosen but was instead forgone. For example, suppose that one is faced with several ways of spending an evening at home. The choice made is to study economics (perhaps because there is an economics test tomorrow). The opportunity cost of this choice is the value of the highest valued alternative to the time spent studying economics. While there may be many alternatives to studying economicswatching television, reading a novel, talking on the telephone there is only one alternative that has highest value. In this example, the alternative with highest value there is only one alternative that has highest value....
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