EVERY CHOICE IS A RENUNCIATION

 What does opportunity cost mean?So why is there a concept called opportunity cost in %%sep%% the main problem for economics

One of the fundamental concepts of economics is the opportunity cost. What does opportunity cost mean? To understand the term of opportunity cost we should understand the term of scarcity at first. The scarcity does not mean something does not exist; it means that the lack of something.

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For example, when we talk about the scarcity of cars, it does not mean that there are no cars, it means that there are not enough cars for everyone who wants to buy a car because the number of cars available is limited. So, the main problem for economics is obligation to satisfy unlimited wants with limited resources. Hence, we have to trade-off between things that we want to do.

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And these things that we did not choose to do has a cost for us and this cost is called, as we mentioned above, opportunity cost.

So why is there a concept called opportunity cost in economics?

The mean reason for the existence of the concept of opportunity cost, as we emphasized above, is the limited resources and unlimited desires. To give an example for the opportunity cost, time is a limited resource, and we have to choose between things that we want to do in that limited time we have. And based on this information, we can say “every choice is a renunciation”.

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Our budget is also limited, and we could not buy everything that we want. We have to list what we want to buy in order to needs, and we have to give up some goods and services to buy others. In economic term a rational consumer list goods and services in order to their utility. Utility is the satisfaction we get from the goods and services that we consume. The utility of every extra unit that we consume is called “marginal utility”.

EVERY CHOICE IS A RENUNCIATION

Furthermore,

The utility of every extra unit that we consume will decrease compared to the previous one, this is called diminishing marginal utility. Let’s give an example for utility, suppose that you are so hungry, and you decided to eat a hamburger, however you also want to eat an ice-cream. As a rational consumer you should list your needs, the first item of list might be the hamburger because you are so hungry, and the first hamburger’s utility will be high. If you decided to eat one more hamburger the second hamburger’s utility will be less than the first one because you are not as hungry as when you ate your first hamburger.

That is why, it does not make any sense for you eating another hamburger. As for the opportunity cost, the opportunity cost of the choosing ice-cream at first was too high for you because you were hungry before the first hamburger.

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However,

Now alternative cost of choosing ice-cream is lower than before now.
Finally, every choice is a renunciation, when we choose something (like eating hamburger in our example) we give up something else and these things that we give up has a cost and that topic is base of the economics. I hope the things you choose are worth the things you give up.


 

Yusuf TOKAT

❝ Hello, ı am Yusuf. I am an economics student at Anadolu University, and I enjoy sharing all my knowledge about economics and finance with you. Thank you for your interest

 

 

 

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