ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment).

Detailed explanation-2: -A person can incur opportunity costs, even without spending a single cent, because its concept extends beyond the economics level. Since opportunity cost involves the benefits or losses incurred in decision making by choosing an alternative, an individual can make wrong decisions that might destroy their morals.

Detailed explanation-3: -Opportunity cost refers to the loss of other alternatives, when one alternative is chosen over others. For example, given a $1 bill, a person may buy an apple or an orange or a banana. He can not buy all three or any two of it. Thus, he has to chose among buying apple, orange and banana.

Detailed explanation-4: -The Idea of Opportunity Cost Since resources are limited, every time you make a choice about how to use them, you are also choosing to forego other options. Economists use the term opportunity cost to indicate what must be given up to obtain something that’s desired.