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: -Opportunity Cost Example Deciding whether to spend a gift card on a strawberry smoothie or a banana smoothie. Deciding whether to spend $7 every morning on coffee or consistently invest that money in a retirement account. Deciding whether to invest capital in refurbishing equipment or in better employee training.

Detailed explanation-3: -Trying to decide whether to take the Fourth of July off to spend with your family, or to go to work and make extra overtime? That’s a trade-off. Trade-offs create opportunity costs, one of the most important concepts in economics. Whenever you make a trade-off, the thing that you do not choose is your opportunity cost.

Detailed explanation-4: -When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else.