Opportunity cost in Economics
Opportunity cost in Economics
Opportunity cost is the next best alternate forgone. (Opportunity cost definition)
I know that you guys are not here for the definition because all Economics books are flooded with this definition, so I am going to make it simple by this example:
Imagine you have $20 in your pocket and you want to buy a burger and a sandwich, but you cannot buy both of them because the price of burger is $16 and the price of the sandwich is $9 which sums up to $25.
You have $20 in your pocket.
If you buy both burger and sandwich you will have to pay $25
So, that means you will have to buy one of them as you do not have the money to buy both of them
This shows that your wants are more than your resources (scarcity)
Your resources are $20 and wants are of $25
What is opportunity cost?
As you have limited resources you are forced to make a choice because you cannot afford to buy both things.
If you decide to buy the burger:
The opportunity cost of burger is sandwich.
If you decide to buy the sandwich:
The opportunity of sandwich is burger.
Opportunity cost is the thing which you did not chose while you were making the choice. Another point which I would like to make is that opportunity cost is never mentioned in monetary price value.
You will never say that the opportunity cost of burger is $9
You will never say that the opportunity cost of sandwich is $16
