FREE ESSAY ON OPPORTUNITY COST

OPPORTUNITY COST

Define and explain the concept of opportunity cost.
Opportunity cost is defined by Sloman and Norris as (1999, pg. 09) "the cost of any
activity measured in terms of the best alternative forgone." It is important to note that
the definition refers to the best alternative forgone, not the top three alternatives or
top ten. Opportunity cost is only concerned with the result of making a particular
decision and the losses incurred or the impact that choice will have. Making what may be
considered to be the right decision at the time is based various criteria, some of which
will be influenced by personal values and experiences.
Opportunity cost is an important concept in economics as it can be used to predict the
feasibility of one decision over another. It shows how the decision to increase the input
of resources to one area could dramatically affect the output in another area. A
simplified example is a country that only has two major exports, rice and wheat. The
country has maintained an even balance for many years but climatic changes now dictate
that only one type of crop can be grown for six months of the year. The country must make
a decision as to whether they will benefit more from growing either wheat or rice. 
The government calculated that it is significantly more profitable to grow and export
rice so a decision is made to grow more rice. The opportunity cost of this decision is
that there will be a decrease in the production of wheat resulting in an increase in the
price of wheat products.
Bibliography
17. Sloman, J & Norris, K. 1999, Economics, Prentice Hall, Australia.