“The cost of something is what you give up to get it” isn’t it? Don’t you loose opportunities to enjoy other things you like most? But, how do we calculate it? First of all, before to decode this, let’s understand actual cost and opportunities cost.
List of ten basic principles of economics
1.People face trade offs
2.The cost of something is what you give up to get it.
3.Rational people think at the margin
4.People responds to incentives
5.Trade can make everyone better off
6.Markets are usually a good way to organize economic activity.
7.Government improves market outcomes
8.The standards of living depends on country’s production.
9.Prices rise when the government prints too much money.
10.Principles of money supply and inflation
Second basic principle of economics — The cost of something is what you give up to get it.
Out of ten basic principles of economics, it is the second principle regarding opportunity cost. It is well said that nothing is free lunch and the cost of something is what you give up to get it.
Because, people have scarcity of resources but limitless choices and desires. In such circumstances, person in question has to face trade-offs while making decisions. This is what the principles of economics regarding opportunity cost states.
Understanding Opportunity cost with examples
Suppose, you are a college student and you need two years to be a degree holder to get employed. Apart from this, you are a natural dancer, and that is your passion.
And, just imagine that accidentally, one day, someone has offered you a lucrative job either to train or to perform for stage. In this situation what would be your decision or thought process?
Certainly, first of all, you might be in favour of the proposal that you have offered. But, at the same time, there is a fear to miss the degree you want most. In this way, you start comparing choices you have in a rational way.
So, until you study properly, you can’t make your mind. Because, if you go for job, you are going to miss the degree and future benifits as well.
Actual cost vs opportunity cost
Opportunity cost — actual cost + cost of time and future benifits” But, actual cost is what you give as medium of exchange without weighing value of missed opportunities.
But, if you reject the offer you need, you are going to lose the job opportunity that finally you are going to get after degree. In both circumstances, loss is certain because you like both.
Simply, the actual cost of a product you purchase as well as the cost you are going to pay in the form of time and future benifits of choice you are sacrificing are called opportunity cost of that product.
Scarcity of resources and trade-offs
Scarcity of resources is the determining factor in making trade-offs in the minds of people in question. Trading one for other becomes necessary only if you have more choices but less resources. And to make economical and wise decisions, careful study is compulsory.
Exactly, the second principle of economics regarding opportunity cost proves it that to make prudent, rational decisions , person in question need better understanding of choice and situation.
Final thought on principle regarding Opportunity cost,
Truly, basic principles of economics are designed by observing the people’s economic behavioral patterns while making economic decisions. Absolutely, these are the bedrocks of economics.
These principles also convince human mind that nature never offer anything without cost. Because, it is wisely said by great men that there is everything to satisfy the need of people but nothing to satisfy the greed of single.
Solved questions on principle regarding opportunity cost
Take a look at the following solved questions on the principle the cost of something is what you give up to get it.
Q. 1 What sis the second principle of economics? What does it tell about?
Ans: Second principle of economics is about opportunity cost. It tells that nature never offer anything without cost. It means there is nothing for free and every one has to pay something more than the actual cost of something.
Q. 2 What is the principle- The cost of something is what you give up to get it?
Ans: This Principle is also called as principle of opportunity cost. Opportunity cost is the actual cost plus cost of future benifits of choice someone sacrifies.
Q 3 What is difference between actual cost and opportunity cost?
Ans: Actual cost is what you give as medium of exchange without weighing value of missed opportunities. Whereas Opportunity cost = actual cost + cost of time and future benifits”
Simple and continuous future tense