Saturday, 6 July 2013

Opportunity cost

Opportunity Costs

The occurrence of natural disasters often sees the economic situation to be not doing so well. Referring to Hurricane Sandy as an example, the cost of Hurricane Sandy has been estimated to be worth a single day's GDP which is approximately $50 billion. Half of the $50 billion is being incurred for recovery and half of it is being incurred for lost production. This is an example of opportunity cost because the funds which were supposedly meant for further investments would now have been spent on the recovery from the damage. Farmers would have to forgo their plans of upgrading their machines due to limited budget in order to repair the utilities of the farm.

Decisions have to be made

Decisions have to be made every time even if we do not like it. From a simple decision of what to eat to a tougher decision that will affect our lives such as what job is suitable for us. Each and every one of us has to make a decision and without realising, our decision making is somehow related to an economics concept.
A good example of a decision related to an economics concept will be:

You can’t choose both either to study or watch television. If you decide to STUDY, your opportunity cost will be WATCHING TELEVISION. And if you choose WATCHING TELEVISION, your opportunity cost will be STUDYING.

Human wants are always unlimited and cannot be always fulfilled. But as we all know, the resources are limited. People will always say that they are grateful and happy with what they have but there are more that they want to have.

For example, you desire for more CASH, because you do not have enough. Cash is the resources. In this case, you are actually facing SCARCITY. Scarcity arises when people desire more things than what the resources can supply.

Choices have to be made. As a human being, we have to be rational while making choices in order to make the best choice. Individual will obviously make choices which will maximise their satisfaction.

Written by : Adelynn Yeo Qin Qing (0315293)
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  1. Love how you give examples so we can understand better! Great job, keep it up!! :)

  2. Good job! Explanations are very detailed. :)