OPPORTUNITY COST AS A BASIC CONCEPT OF ECONOMICS, Opportunity cost as a basic concept of economics is another aspect of human behavior in relation to dealing with the available scarce resources. The idea of arranging our basic need, choice the very one we want to satisfy and then letting the others go,, check out scale of preference here. A man having just two dollars and have need of a t-shirt and and android phone but the purchasing power to buy only one out of the two item.
If he chooses to buy the t-shirt and leave out the android phone, it then means that the opportunity costs of the t-shirt is the android phone which he did not buy
Definition of Opportunity cost
Definition: Opportunity costs is defined as an expression of cost in times of forgone alternatives. It is the satisfaction of one’s want at the expenses of another want. It refers to the wants that are left unsatisfied in order to satisfy another more pressing need. Human wants are many, while the means of satisfying them are scarce or limited. We are therefore; faced with a problem where we have to choose one form a whole set of human wants; to choose one means to forgo the other, a farmer who has only two hundred naira (200.00) and want to buy a cutlass and a hoe may discover that he cannot get both materials and item for two hundred naira.
He would therefore have to choose which one to buy with the money he has. If he decides to buy a cutlass, it means he has decided to forgo the hoe. The hoe read simple farm tools here, is thus what he has sacrificed is the forgone alternative and this is what is referred to as opportunity costs should not be confused with Money cost refers to the total amount of money that is spent in order to acquire a set of goods and service.
For example, a customer who spent 6,200.00 to buy a pair of trousers has dispensed with cash. The 6,200.00 spent is the money cost.
Importance of Opportunity Cost
- Importance of Opportunity Cost To individuals
- Wise choice: Opportunity cost enables individual to make wise choice between competing wants.
- Importance of Opportunity Cost to Efficient use of scarce resources:
It also assists individual to make maximum use of scarce resources relative to their unlimited wants.
- Importance of Opportunity Costs To the firms
- Rational decision: It assists the firm to make rational decisions about production process.
- Importance of opportunity costs to Techniques of production:
- How the government of any country makes use of opportunity cost
- Preparation of budget: Opportunities cost helps the government in the preparation of budget, since it assists in efficient allocation of scarce resources to certain sectors of the economy.
Decision making process: It helps the government in making certain decisions, e.g. the priority areas that may require immediate attention, such as medical and education
- economic tools for nation building
- factors affecting the expansion of industries
- getting mineral resources and the mining industries
- demand and supply
- types of demand curve and used
- advertising industry
- factors of production
- joint stock company