Opportunity cost
| English | Chinese | Pinyin |
|---|---|---|
| opportunity cost | 机会成本 | jī huì chéng běn |
| next best alternative | 次优选择 | cì yōu xuǎn zé |
| consumers | 消费者 | xiāo fèi zhě |
| producers | 生产者 | shēng chǎn zhě |
| trade-off | 取舍 | qǔ shě |
Every choice has a cost
- Spend your savings on a holiday and you can't also spend it on a bike. Choosing one means giving up the other.
- That sacrifice — the opportunity cost 机会成本 — is one of the most important ideas in economics.
Opportunity cost is:
It is the single next-best alternative sacrificed.
Opportunity cost is the value of the ______ best alternative given up.
The single next-best alternative.
What opportunity cost is
- Opportunity cost = the next best alternative 次优选择 you give up when you make a choice.
- It applies to everyone: consumers 消费者, producers 生产者 and governments.
Worked example. A government spends its budget on a new hospital instead of a new school. The opportunity cost is the school it gave up.
Points on, inside and outside the production possibility curve
Opportunity cost on the frontier
Moving along the frontier, gaining more of one good always means giving up some of the other — that sacrifice is the opportunity cost.
A government builds a hospital instead of a school. The opportunity cost is:
The opportunity cost is the next best use of the budget — the school.
Opportunity cost for everyone
- Consumers: a phone vs a holiday.
- Producers: making cars vs making trucks with the same factory.
- Governments: hospitals vs schools with the same budget.
Choosing one thing means giving up the next best alternative
Opportunity cost applies to consumers, producers and governments.
Anyone making a choice with scarce resources faces an opportunity cost.
Why it matters
- Thinking in opportunity cost forces you to compare the real trade-off 取舍, not just the money price.
- Good decisions weigh what you gain against what you give up.
Opportunity cost is the single best alternative, not all of them. If you skip studying to watch a film, nap or walk, the cost is just the one you'd most have wanted — not all three.
Opportunity cost is useful because it measures:
It compares what you gain with what you give up.
You've got it
- opportunity cost = the next best alternative given up
- it applies to consumers, producers and governments alike
- it captures the real trade-off, not just the money price