Opportunity costs play an important role in economics. They help us understand what we give up when we make a choice.
1. What is Opportunity Cost?
Opportunity cost is the value of the next best option that we miss out on when we make a decision.
2. A Simple Example
Imagine a student who decides to go to college for four years instead of working.
The opportunity cost for this student is not just the money spent on college, like tuition fees.
It also includes the money they could have earned if they chose to work instead.
For example, a high school graduate in the U.S. might earn about 152,000.
If tuition costs around $10,000 each year, that adds up to a significant amount.
3. How Businesses Use Opportunity Costs
Businesses also think about opportunity costs when they make investment choices.
For example, if a company has $1 million to invest, they might look at two options:
If the company picks Project B, they are giving up $20,000, which is the extra money they could have earned from Project A.
In summary, by looking at opportunity costs, both people and businesses can make smarter choices that help them use their resources better.
Opportunity costs play an important role in economics. They help us understand what we give up when we make a choice.
1. What is Opportunity Cost?
Opportunity cost is the value of the next best option that we miss out on when we make a decision.
2. A Simple Example
Imagine a student who decides to go to college for four years instead of working.
The opportunity cost for this student is not just the money spent on college, like tuition fees.
It also includes the money they could have earned if they chose to work instead.
For example, a high school graduate in the U.S. might earn about 152,000.
If tuition costs around $10,000 each year, that adds up to a significant amount.
3. How Businesses Use Opportunity Costs
Businesses also think about opportunity costs when they make investment choices.
For example, if a company has $1 million to invest, they might look at two options:
If the company picks Project B, they are giving up $20,000, which is the extra money they could have earned from Project A.
In summary, by looking at opportunity costs, both people and businesses can make smarter choices that help them use their resources better.