Introduction
It is one of the most important concepts of economics. It helps a person while making a decision or selecting a particular product. Opportunity cost is making the best decisions through different available options. According to economics, there are always limited resources. When you are making any decision, you consider other options too. Economists name this term opportunity cost. You have to give up something if you want to obtain another one. We can elaborate this concept through different examples. If you decide to bunk the class, the opportunity cost is missing the lesson. You like pizza and burgers, but cannot eat both at the same time. If you decide to eat a burger, then the opportunity cost is pizza. According to this principle, each decision has an opportunity cost. It is the value of the next available option.
This article aims to discuss opportunity cost from the perspective of an economist. Let’s discuss it in detail through the following aspects;
Individual Decisions and the Concept of Opportunity Cost
An individual always makes the best decisions when he has several options. He will choose only the option that is best for him. According to the dissertation help firm, a person always recognises this concept. In some scenarios, it can change the individual’s behavior. For instance, you spend 5 dollars on lunch when you are at work. But you know that this cost can be lower if you bring your lunch from home. If you bring your lunch from home, it will cost you only 2 dollars every day. If you remember these things, the opportunity cost of lunch is 3 dollars. It may not be a big amount for you when you are spending it daily. However, if you count your working days per year and multiply this amount, it will be a hefty one. If you think about this scenario, you can end up changing your mind. So in short, realizing the opportunity cost will affect your behavior and choices.
Societal Decisions and the Concept of Opportunity Cost
We can link societal decisions with opportunity costs. In this regard, health care is the best example. Opportunity cost for housing and the environment will always be less. Such trade-offs will rise every time the government changes its policies. Any economy produces a lot of goods and services. In order to make specific goods, there are a lot of goods that have to be forgone. These used resources are unavailable for making other goods. The social opportunity cost will include externalities too. Apart from this, it will include the cost of production. It is way different than individual opportunity costs. The individual opportunity cost will include direct opportunity cost, excluding any externalities. Another great example of social opportunity cost is unemployment. The government will provide social benefits to jobless people when unemployment rate rises. The opportunity cost of not providing jobs is social benefits.
Advantages of Opportunity Cost
The prime focus of opportunity cost is to provide a benefit. When a person chooses an option over other available ones, it gives him an advantage. It is important to note that benefits can be personal, or related to the business. A selected option has more advantages than other options. In any society, resources are always limited. The CEO of cheap dissertation help said that this gives a person some chance to increase his satisfaction level after choosing the best option. At the same time, it helps you realize the lost opportunity. In this regard, it will help you become more sensible while making economic decisions. Another advantage of opportunity cost is comparing the prices with benefits. When you’re buying something, you can compare the values of each option. This way, you can decide the best use of your income. These advantages can help you while making a decision that is best for you.
Disadvantages of Opportunity Cost
There are also several disadvantages of opportunity cost. One of the major disadvantages of opportunity cost is time. It takes a lot of time to make a decision. A person has to think a lot, and compare the lost opportunity while making a decision. It is not necessary that you have a lot of time to make a decision. Sometimes, you may have little time to decide on the best available option. Another major drawback of this economic concept is the lack of accounting. It is a key area that the company accounts will fail to consider. Opportunity cost (OC) often includes future events that make it hard to consider. It is true in the case of non-monetary benefits. It is the prime responsibility of a company to consider the OC of the selected item. If it fails to add that cost, it would not be helpful in the future financial assessments.
Real-Life Application of Opportunity Cost
As human beings, we calculate opportunity costs on a daily basis. We make a lot of decisions when we purchase any item. Be it implicit or explicit, we will consider it as an opportunity cost. If you are a businessman, you need to have in-depth understanding of this economic concept. It will help you a lot while making a decision. If you are an investor, it will guide you for investing at the right moment. This economic concept is all about making the best decisions. Once you make a decision, you will maximise your satisfaction. We may not realise it, but we do use this economic concept in our daily lives.
Conclusion
Opportunity Cost is one of the most important concepts of economics that helps a person make the best decision. It is about making the best decision out of all available options. The selected option will maximise your level of satisfaction. This economic concept is useful in individual and societal decision making too. There are several advantages and disadvantages of opportunity cots. The major advantage in this regard is that it provides benefits. But at the same time, the major disadvantage is that its time-consuming. So this was a brief overview of opportunity cost that helps us evaluate the benefits of our decisions.