Opportunity Cost And Its Effect On The Economy

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Opportunity cost refers to what you must give up when it comes to decision making when it comes to choice, or it relates to the value of the next best opportunity. Opportunity cost is the implication of scarcity in the economy. It entails where people have to choose between different alternatives when determining on how they shall spend their money and their time. The Nobel Price Economist winner Milton Friedman suggested that there is no free lunch for people who are fond of saying that instead, it means that in the world of scarcity everything has an opportunity cost. There is always an exchange involved in any decision you may wish to make (Greenberg, & Spiller, 2016). The profit a company may seem to obtain from the capital, equipment…show more content…
Work-leisure choices – the opportunity cost of determining the involvement of oneself not to engage in extra working hours will incur lost wages foregone.
b. Government spending priorities – the government may wish to have an opportunity cost spending of $100 billion on investment regarding health matters which might be less to that of spending against transport and education spending.
c. Investing today for consumption tomorrow – the opportunity costs of investing in an economy regarding capital goods is the production of the consumer goods given up for today.
The use of opportunity cost in economics helps in displaying the different professionalism of a firm and an individual business person in the market world. An individual or business firm aims to maximize profits. Profit is the equivalence to the difference between revenue and cost: profit = total revenue – total cost. The total cost refers to the opportunity cost which is accrued while doing business.
Opportunity cost is higher than explicit costs since opportunity costs has to involve implicit costs. Hence, in the economic profits opportunity costs are thought to be lower than the accounting profits since accounting profits don’t include implicit cost because it is not easy to measure. The accountant is not entailed in knowing what investment opportunity was given up in using the money to the commencing of the business, which implies opportunist costs are that useful
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