Scarcity And Choice

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ice (whether measured by money terms or other terms). The true cost of any product (e.g. car) is not its market price but the value of the other things that could have been made instead.

The opportunity cost of any decision “is the value of the next best alternative that the decision forces the decision-maker to forgo”. The opportunity cost is the true sacrifice that the economy must incur to get a car.

There is a significant relation between the opportunity cost of an item and its market price.

The opportunity cost of a car and its money cost are usually closely tied, because of the way a market economy sets the prices of steel that go into the production of cars. Steel is valuable because it can be used to make other goods. If those other goods are valued highly by consumers, the price of steel will be high, and vice-versa.

In case the market is functioning well:
 Goods that have high opportunity costs will tend to have high money costs
 Goods that have low opportunity costs will tend to have low money costs.

The car is an example where its price is measured in money terms, what about other terms?!

The market value of time is another term to measure the price of a certain product or service.

The wages that could be earned by working instead of attending college. Because giving up these forgone wages in order to acquire education, they are part of the opportunity cost of the college education.

(T) (F) The opportunity cost of a college education includes wages lost while enrolled in school.

(T) (F) Opportunity cost can be always measured in money.

( II ) Scarcity And Choice For A Single Firm

The nature of opportunity cost is perhaps clearest in the case of a single firm that produces two outputs from a fixed supply of inputs. Given current technology and the limited resources, the more of one good the firm produces, the less of the other it will be able to produce.

A produ...