Definition
Opportunity cost is the choice of the alternative good or services against the other based on cost and benefit. There is always a trade-off in opportunity cost as resources are limited and they are used in various ways.
Examples
Suppose a person is thinking of riding a bus and not driving his own car. If he is riding the bus then he is travelling more cheaply but not as comfortably like his own car. So, some cost travelling by bus are waiting for the bus, walking to the bus stop and a slow journey. If the choice is between travelling cheap then bus is the right option but if the time more important then driving own car is the right decision.
Suppose a teenager is confused between attending the college instead of taking a job. If the option is going to college then the income that can be earned from the job and the experience from job is gone. Again choosing college as the option there is another opportunity cost that is spending money on tuition, books, stationery etc. But the benefit of going to college is earning a degree to get high paid job.
The opportunity cost of eating chips gives the benefit of satisfying the hunger but there is also a cost associated with it. The cost associated with pack of chips are the money spent on buying the pack of chips, unhealthy food, increases the weight of a person. So if the benefit is higher than the cost then the person will consume more bags of chips.
Buying books online rather than buying in the bookstore. There is opportunity cost of buying the book online which includes the shipping charges and time taken to deliver the book .The benefit is the discount received by buying online comparing the cost at the bookstore. So if the cost of the book including the shipping charge is less than the price at the bookstore the person will buy online. If the reason is time then it is more likely that the person will buy it from the bookstore.
Scarcity and Choice
Human have high desires and human wants are unlimited. This creates scarcity. We want more land, more capital and most importantly more time. These are all resources. When the resources are less but the desires are more, scarcity arises. When scarcity arises then a person has to make an alternative choice. If a person is rational then he will try to maximize his own satisfaction and the firms will maximize profits.
Hence, opportunity cost arises when there is a need to take decision or choice. When an economic agent has to choose between the different ways of allocating the scarce resources then it is opportunity cost. The opportunity cost is explained graphically by the production possibly frontiers(PPFs).
For example, a person in his job need to give a project in a specific time but he also wants to go to the party with his friends. Time is scarce resource so the person has to make a choice whether to complete the project as the benefit of party is to enjoy and relax but benefit of completing the project is gaining more appreciation and promotion in the job.
Conclusion
Hence, we can infer that whatever the choice is there is a cost associated with it. But we have to test which cost is higher and which is less based on time and availability. Thus, the concept of scarcity is a route to opportunity cost.
Works Cited
Mankiw, N. Gregory. Principles Of Economics. Fort Worth, TX: Dryden Press, 1998. Print."Opportunity Costs In Everyday Life". Economique Weblog. N.p., 2012. Web. 16 July 2016.
