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The document discusses the concept of opportunity cost through examples and explanations provided by multiple contributors. It begins by explaining opportunity cost using an example of choosing between attending free and paid music concerts. It then provides definitions of opportunity cost as the value of the next best alternative forgone or the benefits lost from not choosing the second best option. The document concludes by emphasizing that opportunity cost represents a trade-off of value rather than an actual monetary cost, and that understanding opportunity cost helps make better decisions when choices are mutually exclusive.
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A very basic and important topic of microeconomics. Oppurtunity costs
The document discusses the concept of opportunity cost through examples and explanations provided by multiple contributors. It begins by explaining opportunity cost using an example of choosing between attending free and paid music concerts. It then provides definitions of opportunity cost as the value of the next best alternative forgone or the benefits lost from not choosing the second best option. The document concludes by emphasizing that opportunity cost represents a trade-off of value rather than an actual monetary cost, and that understanding opportunity cost helps make better decisions when choices are mutually exclusive.
The document discusses the concept of opportunity cost through examples and explanations provided by multiple contributors. It begins by explaining opportunity cost using an example of choosing between attending free and paid music concerts. It then provides definitions of opportunity cost as the value of the next best alternative forgone or the benefits lost from not choosing the second best option. The document concludes by emphasizing that opportunity cost represents a trade-off of value rather than an actual monetary cost, and that understanding opportunity cost helps make better decisions when choices are mutually exclusive.
The lecture notes are a collaborative effort of the participants in the course. You are not required to contribute to the lecture notes, but are encouraged to do so. Together, we can create resources that will be helpful to everyone. Notes for Week 1: Opportunity Costs Another way to view opportunity cost is to consider what am I losing by not choosing the best alternative. Using the example from the class lecture, if I attend the Clapton concert (which I could attend for free, $0), instead of attending the Dylan concert (which would cost me $40, but I value at $50), then I've lost the opportunity realize/gain the value in participating in an activity/consume goods (i.e. see the Dylan concert) at a cost ($40) which is less than what I value it as ($50). - Diana Henderson An "Opportunity lost is an Opportunity Cost". Opportunity Cost is the value of the best forgone alternative between two or more alternatives. When you choose more of one alternative, you lose the opportunity (which cost you) to receive more of the other alternative. Opportunity cost is the value of the next best available activity in comparison to the activity chosen. Put in other words, opportunity costs are the net value of the activity that you forgo while performing some other activity (Let's call it Activity X). It is not the net value of all other possible activities that the individual can engage in when not doing Activity X, but the value of the next best alternative. In the professor's words, the opportunity cost is the value of the next best choice/alternative that is given up to engage in the activity or exchange you desire the more/most - Arka Purkayastha For example, you get three alternatives to choose from: taking an economics class; taking a piano lesson;, or having a short nap. Your aim for choosing any alternative is to maximize your total knowledge. If you end up taking the economics class, your opportunity cost is the "knowledge from the piano lesson" and not "refreshments from the short nap" or "piano lesson knowledge + feeling refreshed from the short nap". In the context of the Bob Dylan and Eric Clapton concerts example, the (net) value of the Dylan concert to us is $50 (price you are willing to pay to attend the concert) - $40 (the price of the ticket of the concert) = $10. This (net) value is the opportunity cost. The (net) value of the Clapton concert is irrelevant to the opportunity cost as we are looking at just the value of the next best alternative, not the value in comparison to the option chosen. "The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.[1] The New Oxford American Dictionary defines it as 'the loss of potential gain from other alternatives when one alternative is chosen.' Opportunity cost is a key concept in economics, and has been described as expressing 'the basic relationship between scarcity and choice'" -- Wikipedia For conclusion, I would state that the value part in the cost of opportunity definition, is in fact a benefit. A benefit lost for not incurring in the forgone option. It ends up being more a comparison of benefits than actual (subjective because individual) perceived values. - Vasco Cavaco Knowing what opportunity cost is helps you make a better decision when choosing between mutually exclusive alternatives because you know in advance how choosing one of the alternatives affects, for better or worse, the outcome of not choosing the other alternatives. It is a way to ensure resources are used efficiently. - Salvador Gallegos Almaguer. Opportunity cost is the cost we pay when we give up something to get something else. There can be many alternatives that we give up to get something else, but the opportunity cost of a decision is the most desirable alternative we give up to get what we want. - Jumoke Akhator. Opportunity cost are the options/benefit(s) forfeited in pursuit of the selected and perceived most favorable option. It's a function of analyzing options to select the discerned best option. - Sholape Iyoho Our decisions and our preferences invariably lie on the opportunity costs that we have to come across, and the constant need to ponder over our decisions so as to envisage maximum benefits - Deep Maity To understand the concept of Opportunity Cost, we must think in terms of VALUE not cost... - Enrique Palacios Value (whether subjective or objective) is definitely the primary concept behind the principal of opportunity cost. When presented with multiple options, it would be the quantity/figure/cost/value potentially gained would you have selected the next best option. -Jose Neftali Ramirez Opportunity cost can be confusing if one relates it to value, however it is a value that one is willing to give up in order to gain something else - Ntshengedzeni Negovha