Economics and Opportunity Cost

Every one of us knowingly or unknowingly is related to all the concepts of economics and we use them in our day-to-day life. We know that Economics is such a vast subject and field of study, which is continuously evolving and is an active area of research. Economics is broadly classified into MicroEconomics and MacroEconomics. There are many profound economists in the world, from where you can learn in-depth and detailed concepts. This series is entirely for people, who are not in the economics field but wanted to learn the crux of it and understand the concepts easily. In this entire series, we will discuss concepts only on MicroEconomics, that too only on the conceptual level and in brief.

Economics is about making choices. Everybody has to make a choice. verybody has to make a decision from the resources they have.

We assume that there are enough resources for us around. But, the fact is Everything is scarce, if this is not true, that you hustling every day for something or the other? — in order to fulfill your needs, you are fulfilling your needs by gathering required resources for you, if these resources aren’t scarce, then there wouldn’t be a hustle right !!.

In the language of economists, resources are scarce and scarcity makes choices inevitable.

In simple terms, I would say that

Economics is all about making choices from the available scarce resources

This would hold true, at least with respect to microeconomics.

Opportunity cost

Everything in life has its own cost and benefits. Similarly, Every choice has its own cost and benefit. Let’s understand this concept using an example.

On a sunny day, I have been to the beach side and it was the day after my final semester exams had been completed. I was just walking along the beach side road and sat on the resting chair at the beach house. After relaxing a bit, I started thinking, “ What B or HIGHER EDUCATION ”.

So, basically, I have one option to choose between the two. If I have chosen “HIGHER EDUCATION” then what is it I am leaving by not opting for “JOB” — I am leaving behind money and industry experience, which is for the entire period of my higher education. Let’s make it more clear — Assume, I have got a job in ‘ABD Company’ as a ‘Software Developer’ for ’10 lakhs per annum’ package and I also got an admit in ‘EGI University’ for ‘Masters in DS’, which is a ‘2-year full-time degree’. In this case, If I have chosen for ‘Masters in DS’, then I am leaving behind 20lakhs for 2 years and industry experience, which is considered as an Opportunity Cost (the name itself says that it is the cost for your Opportunity). So, basically, Opportunity cost means

What is it you are leaving by opting for another best choice

Note: You will always have two best choices out of many behinds. You will be having many choices and out of these many choices, you will always have the two best choices. For example, I have all these below-mentioned choices but

I have selected only the two best choices(JOB and HIGHER EDUCATION) out of all these choices. As I selected HIGHER EDUCATION, my opportunity cost would be with JOB.

So, every time you make a choice, try to get the Opportunity Cost😉 for it. So, you will never forget this concept.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Chamanth mvs

Chamanth mvs

Data Science and ML practitioner | Blogging on medium on technology and self-thoughts | https://www.linkedin.com/in/chamanth-mvs-9a59a4131/