OPPORTUNOTY COST DEFINATION

1. OPPORTUNITY COSTOPPORTUNITY COST

2. Opportunity costs is the concept of costOpportunity costs is the concept of cost
necessary for economic decisionsnecessary for economic decisions

3. WHAT IS OPPORTUNITYWHAT IS OPPORTUNITY
COST?COST?
 Sometimes it is easier to understand a conceptSometimes it is easier to understand a concept
starting out what it is not.starting out what it is not.
 Usually we think of costs asUsually we think of costs as out-of-pocketout-of-pocket
costscosts
5rs (cost of a cup of coffee)5rs (cost of a cup of coffee)
5lakhs (cost of car)5lakhs (cost of car)
 At the time we make the decision to buy the cupAt the time we make the decision to buy the cup
of coffee or the car, this out-of-pocket cost is alsoof coffee or the car, this out-of-pocket cost is also
(usually) the opportunity cost(usually) the opportunity cost
 With the passage of time, the two tend to divergeWith the passage of time, the two tend to diverge
from each otherfrom each other

4. • Opportunity cost or economic
opportunity loss is the value of a product forgone
to produce or obtain another product.
Opportunity cost analysis is an important part of
a company's decision-making processes, but is
not treated as an actual cost in any financial
statement. The next best thing that a person can
engage in is referred to as the opportunity cost
of doing the best thing and ignoring the next best
thing to be done.

5. Opportunity cost is a key concept inOpportunity cost is a key concept in
economics because it implies the choiceeconomics because it implies the choice
between desirable, yet mutually exclusivebetween desirable, yet mutually exclusive
results. It has been described as expressing "theresults. It has been described as expressing "the
basic relationship between scarcity and choice."basic relationship between scarcity and choice."
The notion of opportunity cost plays a crucialThe notion of opportunity cost plays a crucial
part in ensuring that scarce resources are usedpart in ensuring that scarce resources are used
efficiently. Thus, opportunity costs are notefficiently. Thus, opportunity costs are not
restricted to monetary or financial costs: the realrestricted to monetary or financial costs: the real
cost of output forgone, lost time, pleasure or anycost of output forgone, lost time, pleasure or any
other benefit that provides utility should also beother benefit that provides utility should also be
considered. There is always an opportunity costconsidered. There is always an opportunity cost
in a decision that is made either in economics orin a decision that is made either in economics or
everyday life.everyday life.

6. EXAMPLE OF OPPORTUNITY COSTEXAMPLE OF OPPORTUNITY COST

7. THE ROAD NOT TRAVELEDTHE ROAD NOT TRAVELED
 Opportunity cost, then, is a measure of whatOpportunity cost, then, is a measure of what
has been given up when we make a decision.has been given up when we make a decision.
 Consider what Robert Frost had in mind whenConsider what Robert Frost had in mind when
he wrote,he wrote,
Two roads diverged in a wood, and ITwo roads diverged in a wood, and I
I took the one less traveled by,I took the one less traveled by,
And that has made all the difference.And that has made all the difference.
 Imagine the immeasurable opportunity cost toImagine the immeasurable opportunity cost to
all of us if Robert Frost had taken the roadall of us if Robert Frost had taken the road
more traveled by.more traveled by.

8. CONCLUSIONCONCLUSION
Economics costs include, in addition toEconomics costs include, in addition to
explicit money outlays, those opportunity costexplicit money outlays, those opportunity cost
incurred because resources can be used inincurred because resources can be used in
alternative ways.alternative ways.

10. THANK YOUTHANK YOU