Opportunity Cost and Tradeoff
We use economic concepts on a daily basis without even knowing it! When you decide whether or not to eat lunch at a restaurant or make a sandwich at home, you are making a decision based on the costs and benefits of those options. Economists use these same basic tools to examine economic issues. Think about one choice you made in the past several days and explain how this could be analyzed using economics concepts such as tradeoffs, opportunity costs, and marginal analysis.
Think about one choice you made in the past several days and explain how this could be analyzed using economics concepts such as tradeoffs, opportunity costs, and marginal analysis.
- How does the concept of “tradeoff” relate to “opportunity costs?”
- What is the difference between monetary and non-monetary opportunity costs?
- Why are opportunity costs based on a person’s tastes and preferences?
Economics is part and parcel of human life as he attempts to satisfy his ever-growing desires and wants. In most cases, people may utilize these concepts knowingly and unknowingly to make their lives better. Opportunity cost, trade-off, and marginal analysis are examples of terms and economic concepts that are used on a daily basis. Opportunity cost is a concept that refers to the value that an individual must forgo to satisfy one need instead of another or rather to make one investment instead of another (Tribe, 2015). The concept of trade-off applies when an individual is forced to choose or balance between two wants that are opposite and cannot be owned at the same time. On the other hand, marginal analysis is the examination of the benefits that an individual is likely to get from satisfying a particular want compared to the additional cost that he is likely to incur.
A situation where an employee chooses leisure over work can be analyzed using economic concepts in the form of opportunity cost, trade-offs, and marginal analysis. There is a close correlation between opportunity concept and trade-off considering that the employee cannot have leisure and work at the same time and thus, he has to forgo either leisure or work. When an individual chooses one option over the other, he must incur an opportunity cost. Monetary opportunity cost is commonly incurred when an individual has to forgo an activity that has monetary value while non-monetary opportunity cost is a foregone opportunity that has no monetary value whatsoever (Tribe, 2015). Besides, different goods and services have different monetary and non-monetary value. Thus, when a customer prefers one taste over another, he has to incur the opportunity cost of not choosing it over the one he did not choose.
Tribe, J. (2015). The economics of recreation, leisure and tourism. . Routledge.