The essence of economics is choice and the concept of opportunity cost. It is the governing concept of any economic system and a constant presence in my (and your) life. I won’t go into great length about how to make excellent decisions, but you should be aware that when you choose to do something, you are foregoing other options, so we’ll discuss opportunity cost in this article at theboomoney.

the concept of opportunity cost

If you marry someone else, you forfeit the concept of the opportunity cost of marrying someone else. Similarly, if you choose to play or sleep through your economics lecture.

The value of the next best alternative is known as opportunity cost. The concept of opportunity cost is that it is equal to the cost of one thing less the value of another.

To put it another way, if I had to choose between playing basketball and going to the movies, I’d have to forego the next best thing.

Because humans must make choices, they will inevitably confront trade-offs in which they must give up what they want in order to obtain something they want more.

Opportunity Cost and Individual Decisions

When you are faced with a cost, sometimes it helps to think of the opportunity cost, too. Let’s imagine you spend $8 on lunch every day at work, for example.

You may be fully aware that carrying lunch from home would cost only $3 each day, making the true cost of eating lunch at a restaurant $5 per day (i.e., the $8 cost of eating lunch minus the $3 cost of bringing lunch from home). Each one costs $5.

Opportunity Cost and Societal Decisions

There are also opportunity costs associated with government initiatives. Following the September 11 attacks in 2001, for example, various recommendations were made to increase air travel safety: the federal government might hire sky marshals who would travel invisibly among the passengers. The annual expense of having a sky marshal on every trip is estimated to be around $3 billion.
The cost of retrofitting all US planes with reinforced cockpit doors to make it more difficult for terrorists to take them over would be $450 million.
Purchasing more advanced airport security equipment, such as three-dimensional luggage scanners and cameras linked to face-recognition software, would cost an additional $2 billion.
the concept of opportunity cost in 5 minutes

the concept of opportunity cost in 5 minutes

However, the single most significant expense of increased airport security is not monetary. It’s the opportunity cost of extra airport waiting time. In 2012, more than 800 million passengers travelled by plane in the United States, according to the US Department of Transportation.

Because of the increased security since 9/11, aviation travel now takes longer than it did before the attacks. According to a conservative estimate, each plane traveller spends an additional 30 minutes in the airport per journey.

In 2012, more than 800 million passengers travelled by airline in the United States. Since the 9/11 terrorist attacks, security screening has become more thorough, and as a result, the process takes longer than before.

Passengers passing through security screening at an airport can take up to 30 minutes longer on average.

Economists frequently put a monetary value to the time it takes to convert an opportunity cost in time. Because many business travellers are well-paid professionals, conservative estimates place the average “cost of time” for air travel at $20 per hour.

As a result, the opportunity cost of airport delays might be as high as 800 million passengers x 0.5 hours x $20/hour x 8 billion dollars per year. Waiting time has obvious opportunity costs that can be just as high as direct spending.

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