<1.3 OPPORTUNITY COST> 

• As an obvious consequence of allocating scarce resources to the production of any particular good or service, there will inevitably be something that has to be given up ('foregone'). 

• In other words, the cost of producing 'Good A', is not producing 'Good B'.

• In Economics we refer to the VALUE OF THE NEXT BEST ALTERNATIVE USE FORGONE ('Good B') as the OPPORTUNITY COST of the decision.

Watch the videos below and screenshot 3 examples of opportunity cost.

1. Buying a Car: A consumer chooses between buying a car or saving money for a vacation. The opportunity cost is the vacation they forgo, highlighting the scarcity of money.

2. Time Management: Deciding whether to spend time watching a movie or studying. The opportunity cost is the study time lost, emphasizing the scarcity of time.

3. Food Choices: Choosing between a healthy meal and a cheaper fast-food option. The opportunity cost is health, underlining the scarcity of both money and health.

1. Job Selection: A worker choosing between a higher-paying job far from home or a lower-paying job nearby. The opportunity cost is the time spent commuting, highlighting the scarcity of time.

2. Skill Development: Deciding whether to spend time learning new skills or enjoying leisure activities. The opportunity cost is the lost leisure time, showing the scarcity of both time and skills.

3. Work-Life Balance: Choosing between working overtime for extra pay or spending time with family. The opportunity cost is family time, reflecting the scarcity of both time and money.

1. Resource Allocation: A producer deciding to use land for growing crops or building a factory. The opportunity cost is the alternative use of land, highlighting the scarcity of resources.

2. Product Development: Choosing to invest in a new product line instead of improving an existing one. The opportunity cost is the potential profits from the existing product, underlining the scarcity of capital.

3. Labor Decisions: Deciding whether to automate a process or hire more workers. The opportunity cost is the jobs that could have been created, reflecting the scarcity of labor and technology.

1. Budget Allocation: The government choosing to spend on healthcare instead of education. The opportunity cost is the improvement in education that is forgone, illustrating the scarcity of funds.

2. Infrastructure vs. Social Services: Deciding whether to invest in new infrastructure or social welfare programs. The opportunity cost is the benefits from social services, emphasizing the scarcity of public resources.

3. Environmental Policies: Implementing strict environmental regulations at the cost of reduced industrial growth. The opportunity cost is economic growth, showing the scarcity of environmental resources.

• Explain why government spending on unemployment benefits involves an opportunity cost.

• What is the opportunity cost of a person going to university?

• Why may less wheat be the opportunity cost of producing more milk?

• Explain two different opportunity costs that may be involved in a person becoming a sole proprietor.

• Analyse the possible opportunity costs of an increase in government spending on higher education services.

• Explain why the concept of opportunity cost is important in deciding how to allocate resources.

• What is a possible Opportunity cost of working? 

• What may be the opportunity cost of building an airport?