What Is Opportunity Cost, an economics discussion from Omkar Abhyankar

 Scarcity is what drives individuals in an economy to make decisions. Resources are limited, therefore producers must decide how they want to allocate those resources. To gain the most benefit from production, a producer must consider the concept of opportunity cost. Opportunity cost is the cost of not taking an alternative action. We actually subconsciously consider opportunity costs in our everyday decisions as well. For a simple example of opportunity cost, suppose an individual has a choice between either going to the movies or completing their homework. If the individual goes to the movies, then they will likely not receive a satisfactory grade. Therefore the opportunity cost of going to the movies is getting a good grade. On the contrary, if the individual decides to finish their homework instead of going to the movies, then the individual would miss the opportunity of being entertained and therefore the opportunity cost of finishing homework would be entertainment. In economics, opportunity costs help producers receive the most benefit out of their production by helping them understand what benefit they will miss out on if they produce one good rather than another. For example, suppose a producer has a choice between producing two goods: Good A and Good B. If the producer chooses to allocate their resources towards Good A, then the producer would be missing the opportunity to reap the benefit gained from producing Good B. This benefit which the producer misses out on is the opportunity cost of producing Good A. Opportunity costs can be used to compare the production of two separate producers as well. I will explain this more in my next article titled, “Comparing The Production Of Two Producers”.

Lessons learned in AP Econ class