What does opportunity cost mean in economics?

“Opportunity cost is the value of the next-best alternative when a decision is made; it’s what is given up,” explains Andrea Caceres-Santamaria, senior economic education specialist at the St.

What is opportunity cost in economics example?

When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else.

How do I calculate opportunity cost?

Opportunity cost is calculated by applying the following formula: Opportunity Cost = Return on Most Profitable Investment Choice – Return on Investment Chosen to Pursue.

What is an opportunity cost rate?

An opportunity cost rate is the rate of return that is expected if an alternative course of action were taken. This type of rate is commonly earned on the same risks that have been experienced.

What is opportunity cost curve?

The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. The bowed out shape of the PPC in Figure 1 indicates that there are increasing opportunity costs of production.

What is an increasing opportunity cost in economics?

Increasing opportunity costs occurs when you produce more and more of one good and you give up more and more of another good. This occurs when resources are less adaptable when moving from the production of one good to the production of another good.

What is the opportunity cost and the production possibilities curve?

Lesson summary: Opportunity cost and the PPC 1 Key terms 2 Key model. The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. 3 Common Misperceptions. Not all costs are monetary costs. 4 Discussion Questions.

What is oppopportunity cost?

Opportunity cost is the explicit costs and implicit costs added together. Calculating Opportunity Cost : Many times on an exam you will see questions that require you to calculate opportunity cost. The key to answering these questions is to focus on the cost of the choice.

What is the opportunity cost of 6 additional units of capital?

Take a look at the PPC graph to the right. If this economy produces at point 2 instead of point 1, the opportunity cost of 6 additional units of consumer goods is 13 units of capital goods.