Definition Of Opportunity Cost Economics

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I know the definitions, but I don't understand them. Opportunity cost is the most highly valued opportunity or alternative forfeited when a choice is made. Trade-off is a situation in which more of one thing necessarily means less of something else. I need to understand these definitions for my economics class. I want the answer in clear details.

Best Answer

'Opportunity cost' means that doing one thing cost you the opportunity to do something else. For example, you have a one week vacation at the time of your 17th birthday and limited funds. You can spend it with your friend in Hawaii or with your Dad in Tennessee. You go to Hawaii. The opportunity cost was not getting to go see your Dad in Tennessee for your 17th birthday. You can never spend your same vacation that you spent in Hawaii again, so you can't also go to Tennessee for your 17th birthday. That's an opportunity cost -- the opportunity is gone forever and it's what you had to give up to do the Hawaii trip for your 17th birthday. Trade-off is a related concept. So for example, you have $400 and 50 pairs of shoes. You like money and you like shoes. You go buy 2 new pairs of shoes. You now have $300 and 52 pairs of shoes. Trade-off. Because the concepts are so related, listen carefully to how your teacher uses the terms and how the teacher wants you to differentiate between the two concepts. Hope that helps.

Ok... here is the whole question: What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greatest opportunity cost: Allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain. this is what I got for the definition of opportunity cost: The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action. Can anyone help me with the rest? Even if you can just start me off? I have the answer but I can't seem to put it in words that makes sense. Thanks

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In relation to the square block problem heres my answer... Assuming that the land value in the city is more valuable than the one on the outskirts of the suburb, the opportunity cost of that parking lot in NYC is far greater than the same lot in the outskirts of the suburb and heres why. When you build that lot in the heart of a city, you lose out on the next best option, the opportunity cost. That parking lot could have been a hospital saving lives, or a sports stadium generating city revenue. By putting a parking lot there, you lose out on the value of said potential hospital or stadium. On the flip side, putting that lot on the edge of town in the suburb, does indeed have an opportunity cost, but more than likely the value of that forgone option in the suburb is not as valuable as the forgone options of the lot in the big city (hospital or stadium). Maybe by putting the lot there, you lose out on a duck pond or something similar. Hope that helps. The opportunity cost definition you have is exactly correct. Think of it this way. Suppose you can go to work and make $50 or go to the movies with friends. You decide to go to the movies. The opportunity cost of going to the movies was the value of your other option, working, or $50.