Opportunity cost

Welcome to class! 

In today’s class, we will be talking about the opportunity cost. Enjoy the class!

Opportunity cost

Opportunity cost classnotes.ng

At the end of the lesson, you should be able to;

  • Explain the meaning of opportunity cost;
  • Draw connections of opportunity cost to individual, firms, and government

Note

What is Opportunity Cost?

This can be defined as an alternative forgone. This concept is also called the real cost or true cost.

For example, if Mr Audu decides to buy a television set instead of a radio set then the opportunity cost of the television set bought is the radio set forgone.

The concept of opportunity cost helps in our daily decision and applies to individual firms and the government. It helps an individual to make the right choice among their many needs by allocating his services resources in the best-known way.

It helps firms to allocate more of the resources in the production of goods and services that will give them the highest contribution margin (profit). To the government, it helps them to make the right choice as regards what project it slowly spends its resources on. For example, the Lagos State government with her limited revenue may decide to provide free education and medical care.

Evaluation

  1. Define Opportunity cost.
  2. What is Scarcity of resources?

Importance of opportunity cost as related to:

  1. Individuals,
  2. Firms or organizations
  3. Governments
  • To individuals:
  1. It helps an individual to make a decision.
  2. It helps an individual to allocate scarce resources.
  3. Judicious use of resources.
  4. Prioritizing our wants.
  5. It helps an individual to make a wise choice.
  • To firms:
  1. Decision making.
  2. Helps to decide the method of production.
  3. Helps in project execution.
  4. Guides policy formulation and implementation.
  • To the government:
  1. Resources allocation.
  2. Decision making.
  3. Preparation of budget.
  4. Helps in project execution.

Evaluation

  1. List 3 importance of opportunity cost to the individual.
  2. State 2 importance of opportunity cost to a firm

Reading assignment

Amplified and Simplified Economics for SSS by Femi Longe page 6-7

General evaluation
  1. List ten renowned Economics in the world.
  2. Why is the scale of preference important?
  3. Mention five importance of studying economics.
  4. Give five definitions of Economics by various prominent Economists.
  5. Differentiate between Want and Needs.
  6. Differentiate between nominal cost and real cost
  7. State three importance of opportunity cost to each of the economic agents

 

In our next class, we will be talking about the Basic Economic Problems of Society and its Origin.  We hope you enjoyed the class.

Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.

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