Opportunity cost

1 Pages 288 Words

Opportunity cost is defined by Case and Fair as (1999, pg. 03) “that which we give up, or forgo, when we make a choice or a decision.” The article states that “opportunity cost measures the cost of any economic choice in terms of the next best alternative forgone.” It is important to note that this definition refers to the best alternative forgone, not the top three alternatives or top five. Opportunity cost is solely concerned with the result of making a particular decision and the impact that choice will have. Making what may be considered to be the right decision at the time is based various criteria, some of which will be influenced by personal values and experiences.
“When we are considering the opportunity costs of decisions we make, we must use the highest-valued alternative that has had to be sacrificed for the option we have chosen. Many choices involve more than one alternative.” This notion applies to all culture, individuals, firms, governments and businesses.
“The opportunity cost of the government spending £20 billion on interest payments on the national debt is the extra money it might have allocated to the National Health Service.” The government calculated that it is significantly more beneficial to payoff the national debt then to finance the National Health Service. The opportunity cost of this decision is that there will be a decrease in the national debt resulting in an increase in the needs of the National Health Service. Opportunity cost is an important concept in economics as it can be used to predict the feasibility of one decision over another. It shows how the decision to increase the input of resources to one area could dramatically affect the output in another area....