Concept of Opportunity Cost – Can opportunity cost ever be zero.

Opportunity Cost: 

Choices are necessary because resources are scarce. A sacrifice is involved in choosing a scarce resource to produce one thing rather than another for example certain amounts of land, labor and capital that could have made 20 pocket calculators, can be used instead to make word processor.

The sacrifice in making a word processor is, thus 20 pocket calculators. If some course of action is adopted, there are typically many alternative that might as well be found.

The economists term for costs expressed in terms of forgone alternatives is the opportunity cost. To get a precise measure of this opportunity cost, the sacrifice of next best available alternative is taken. For example: If the government had not built the roads, what was the best alternative use of its funds ? Then the alternative is what is being given up to get the roads.

Thus, opportunity cost measures the cost of something that one attains-measured in terms cf the sacrifice of the next last alternative. Can Opportunity cost be zero. Usually opportunity cost is positive in the sense that to have more of one commodity requires giving up some positive amount of some other commodity.

There are, however, three important exceptions. These are, when there are: Free goods-such as air, oxygen, fresh drinking water.

Single-use factors-for example a coal mine produces coal or is left idle and General unemployment of all relevant factors. If there is unemployed labor but no unemployed resources or equipment’s, then the decision to build more roads or hospitals would not require that labor be taken from any other job (since the unemployed could be put to work) but it would require the equipment be moved or shifted from some other use.

Tags: Ba Economics

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