OPPORTUNITY COST

• We know there are unlimited wants and limited economic

resources

•Land, Labour, Capital, Enterprise are scarce and so decisions have

to be made about the method and purpose of their use

•For example, you cannot study Economics and English at the

same time ; When we decide to do one thing, we are deciding not
to do something else

•So choices have to be made

•That is why concept of opportunity cost is important in

economics
•Opportunity cost is-

“ The cost measured in terms of next best alternative foregone

when making an economic decision”
•Opportunity cost is not just relevant when you are buying goods or
services. It can also apply when you choose between doing
particular activities; a money cost is not always involved

Q: Can you give examples when you faced a choice and gave up buying
something or doing something else instead!
 The economic problem applies to all areas of the economy

OPPORTUNITY COST & CONSUMERS

•CONSUMERS: a person who buys goods and services to satisfy their wants
•We are all consumers. The vast majority of us cannot buy everything we like.
The closer the two choices are, the harder the decision will be.
-To buy new car or expensive holiday?

OPPORTUNITY COST & WORKERS

•WORKERS: a person who works for a producer
•Undertaking one job involves an opportunity cost.
•This would be influenced by number of factors – wages paid, chances of
promotion, job satisfaction, working conditions, working hours
-To spend time with family or earn more by doing overtime?
OPPORTUNITY COST & PRODUCERS

•PRODUCERS: someone who creates and supplies goods and services

•In deciding what to produce, private sector firms tend to choose the option
which will give them maximum profits.
-To invest in new machinery or increase training of workers?
-Which crop to grow?

OPPORTUNITY COST & GOVERNMENT

•GOVERNMENT: group of people who officially control a country

•Government has to carefully consider all the options.
-to build a new hospital or a new school?