Benefits Of Opportunity Cost For Opportunity Costs

1391 Words Sep 11th, 2015 6 Pages
Human wants are unlimited but the resources are limited. Therefore, it is not possible to fulfil all the human desires. As a result, scarcity arises. Scarcity is the condition where the human desires cannot be fulfilled due to the limitation of available resources. Hence, to fulfil one wish, we give up another which in economics is termed as the opportunity costs. Due to limited resources and due to unavailability, individuals and society are forced to incur opportunity costs. Opportunity cost is the second best alternative that one gives up. Due to the limitations of resources, human chooses the most viable options as per the benefits and costs.

The diagram above shows the Production Possibility Curve. It shows the level of satisfaction as per the consumption of coke and Pizza. The points A, B, C, D & E shows the maximum level of output one can achieve. Any point below the curve is inefficient and any point beyond the curve is unachievable. In order to enjoy 15 pizzas, one should give up all the coke or in order to enjoy 40 cokes, one should give up all the pizzas. At point B, one can enjoy 13 pizzas and 20 cokes. Likewise, one can enjoy 10 pizzas and 30 cokes at point C and 5 pizzas and 38 cokes at point D.

In order to enjoy 20 cokes, one has to give up (15-13) i.e. 2 pizzas which can be termed as opportunity cost. The opportunity cost to have 30 cokes is the 5 pizzas that we give up because in that point we can have only 10 pizzas. Therefore, to…

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