Saturday, July 11, 2020

Opportunity Cost and it’s relevance

Something different to write upon starting with an easy yet fun topic, Opportunity Cost. So what’s it? 

Let’s say you are a neutral football fan and someone asks you to choose between Messi and Ronaldo, and you choose Ronaldo thinking he has a good physique. Good, but since you had one option and you choose Ronaldo, you lost the chance to choose Messi at that place. This loss in terms of Economics is called as Opportunity Cost, just like the popular dialogue - ‘I won, but at what cost?’, that cost is a concept called Opportunity Cost.

In terms of definitions, it is the loss of other alternatives, when one alternative is chosen. You can say it is a concept of deciding the best choice among all the alternatives present. It is a matter of benefits and sacrifice among the choices. 

Another example by the view of Economics- Say you have a degree from some B- School and also have some savings with you. You will have two choices, one you can do a job and have fixed income coming every month, two you can set up your business with your savings as the initial capital and have a source of income coming from it. So if you choose the later, you directly miss the opportunity to earn fixed income every month from that job. That ‘miss’ is the opportunity cost as it’s a loss. 

Just like every resource i.e land, money, time can have an alternative use out of it, every action, decision and method can have an associated opportunity cost to it. Opportunity Cost comes under the Microeconomics part which deals with the interests of individuals but an individual’s decision(s) can have a big effect on the whole system as well, Eg. A CEO taking a big merger decision which could affect the whole system/company (hypothetical one). This is the easy concept of Opportunity Cost and it’s existence in Practicality.

Well this is a very easy topic though, I said too much about it above as I love this concept 😁, maybe something complex next time. Cheers!

8 comments:

  1. Nice bro.Keep it up😊❤

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  2. Interesting stuff. Keep it up!πŸ‘

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  3. Nice bro . You've made typical bookish concepts easy to understand through day to day intresting examples . Keep it up. Hope you will teach us some more concepts😁

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  4. You made it easy to understand than ducking Google. πŸ‘ πŸ‘ πŸ‘

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  5. Explained it in simple words. Good workπŸ˜„πŸ˜

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