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2. Choice and Opportunity Cost
  A. ChoiceMean
 
1.
 
A resource can be of different uses. If the resource is unlimited ( i.e. not scarce ), we can use it unrestrictedly for all possible purposes.

 

2.
 
If the resource is scarce, we have to choose among different alternatives, i.e. to decide on how to use the resource.
 
Choice
We always have to make choice.
Choice
 
 
  B. Opportunity CostMean
  1. Whenever a choice is made, something is given up.
 
e.g.
 
if you have to choose between apple and orange, choosing apple implies you have to give up orange.
 
2.
 
What we give up when making a choice is " opportunity cost ". In the above example, the opportunity cost of choosing apple is orange
 
3.
 
 
 
 
If we have to choose among more than two alternatives, the opportunity cost of our choice is the best option forgone. For example, if we have to choose one option among apple, orange, kiwi, peach and strawberry, the opportunity cost of choosing apple is orange if orange is the best among orange, kiwi, peach and strawberry. So, the opportunity cost is defined as the highest-valued option forgone.
 
Apple
Apple
Orange
Orange
Kiwi
Kiwi
Peach
Peach
Strawberry
Strawberry
Whenever a choice is made, something is given up.
 
 
4.
 
 
Cost will change when there is a change in the highest-valued option forgone. For example, if now kiwi becomes more valuable than orange, the cost of choosing apple is kiwi, not orange.
 
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