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Microecon:Opportunity Costs

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Notes for Week 1: Opportunity Costs
Another way to view opportunity cost is to consider what am I losing by not choosing the
best alternative. Using the example from the class lecture, if I attend the Clapton concert
(which I could attend for free, $0), instead of attending the Dylan concert (which would cost
me $40, but I value at $50), then I've lost the opportunity realize/gain the value in
participating in an activity/consume goods (i.e. see the Dylan concert) at a cost ($40) which
is less than what I value it as ($50). - Diana Henderson
An "Opportunity lost is an Opportunity Cost". Opportunity Cost is the value of the best
forgone alternative between two or more alternatives. When you choose more of one
alternative, you lose the opportunity (which cost you) to receive more of the other
alternative.
Opportunity cost is the value of the next best available activity in comparison to the activity
chosen.
Put in other words, opportunity costs are the net value of the activity that you forgo while
performing some other activity (Let's call it Activity X). It is not the net value of all other
possible activities that the individual can engage in when not doing Activity X, but the value
of the next best alternative.
In the professor's words, the opportunity cost is the value of the next best
choice/alternative that is given up to engage in the activity or exchange you desire the
more/most - Arka Purkayastha
For example, you get three alternatives to choose from: taking an economics class; taking a
piano lesson;, or having a short nap. Your aim for choosing any alternative is to maximize
your total knowledge. If you end up taking the economics class, your opportunity cost is
the "knowledge from the piano lesson" and not "refreshments from the short nap" or
"piano lesson knowledge + feeling refreshed from the short nap".
In the context of the Bob Dylan and Eric Clapton concerts example, the (net) value of the
Dylan concert to us is $50 (price you are willing to pay to attend the concert) - $40 (the
price of the ticket of the concert) = $10. This (net) value is the opportunity cost. The (net)
value of the Clapton concert is irrelevant to the opportunity cost as we are looking at just
the value of the next best alternative, not the value in comparison to the option chosen.
"The opportunity cost of a choice is the value of the best alternative forgone, in a situation
in which a choice needs to be made between several mutually exclusive alternatives given
limited resources. Assuming the best choice is made, it is the "cost" incurred by not
enjoying the benefit that would be had by taking the second best choice available.[1] The
New Oxford American Dictionary defines it as 'the loss of potential gain from other
alternatives when one alternative is chosen.' Opportunity cost is a key concept in
economics, and has been described as expressing 'the basic relationship between scarcity
and choice'" -- Wikipedia
For conclusion, I would state that the value part in the cost of opportunity definition, is in
fact a benefit. A benefit lost for not incurring in the forgone option. It ends up being more a
comparison of benefits than actual (subjective because individual) perceived values. - Vasco
Cavaco
Knowing what opportunity cost is helps you make a better decision when choosing between
mutually exclusive alternatives because you know in advance how choosing one of the
alternatives affects, for better or worse, the outcome of not choosing the other alternatives.
It is a way to ensure resources are used efficiently. - Salvador Gallegos Almaguer.
Opportunity cost is the cost we pay when we give up something to get something else.
There can be many alternatives that we give up to get something else, but the opportunity
cost of a decision is the most desirable alternative we give up to get what we want. -
Jumoke Akhator.
Opportunity cost are the options/benefit(s) forfeited in pursuit of the selected and perceived
most favorable option. It's a function of analyzing options to select the discerned best
option. - Sholape Iyoho
Our decisions and our preferences invariably lie on the opportunity costs that we have to
come across, and the constant need to ponder over our decisions so as to envisage
maximum benefits - Deep Maity
To understand the concept of Opportunity Cost, we must think in terms of VALUE not cost...
- Enrique Palacios
Value (whether subjective or objective) is definitely the primary concept behind the principal
of opportunity cost. When presented with multiple options, it would be the
quantity/figure/cost/value potentially gained would you have selected the next best option.
-Jose Neftali Ramirez
Opportunity cost can be confusing if one relates it to value, however it is a value that one is
willing to give up in order to gain something else - Ntshengedzeni Negovha