Category: Opportunity Cost

After having gone through the two weekly readings, I have gained a basic level of familiarity with the fundamental concepts and terms introduced in the readings. Based on my understanding, I have selected two topics – one each from the two weeks – wealth generation and opportunity costs, which I think are important concepts in managerial economics. I will be discussing them separately. First, I would like to discuss Wealth Generation.

Wealth Generation: Wealth can be defined as a measure of the value of all the assets of worth owned by a person, community, or country. It includes goods such as cars, homes, and bread for which anybody is willing to pay. It also includes any services anybody is willing to hire, such as medical, education, etc. To produce wealth, you have to possess the resources to start an endeavor of some type. Investing is the technique for creating wealth. Wealth is generated via shifting belongings from decreased valued uses to higher

Intelligent investing is the key to constructing wealth. Investing always consists of hazards as the enterprise you invest in should go down in value. It is quintessential to look up the business and analyze the threat earlier than placing your money. The returns you get by investing your money/assets results in compounding the wealth over a period of time. Wealth generation serves a very crucial part in managerial economics because in a business organization wealth creation is attained by adding more value to its outputs than the cost of all resources used to produce those outputs. It is in the hands of the managers to successfully generate wealth even after covering the capital cost. To attain an efficient economy all the assets should be brought to play into their highest-valued uses. The managers should devise ways to put the assets from lowered-valued uses to higher-valued uses in order to create wealth.

The second topic that I found important to be discussed is opportunity cost. Let’s discuss that concept based on my understanding.

Opportunity cost: We can define opportunity cost as the cost of an alternative that must be gone in order to pursue a certain action/opportunity. In other words, it is the benefit received by opting for the alternative action. When the probability cost of a useful resource is referred to by economists, which implies the cost of the subsequent best possible value choice use of that resource. When the opportunity cost is taken into account business then, it can be further classified into two categories: i. Explicit Opportunity cost Explicit costs are out-of-pocket prices for a firm— for example, payments for wages/salaries, rent, hire payments, utilities, raw materials, and other direct costs. It immediately impacts the profitability of the company. ii. Implicit opportunity cost Implicit costs are the chance price of resources already owned by the company and used in business— for example, increasing a factory onto land already owned. I find opportunity cost plays a pivotal role in managerial economics. As in a business organization on daily bases managers have to analyze the situations and take tough decisions based on what they find would be the best for the growth of their organization. Several opportunities come up let’s say a company owns its building. If the company moves, the building could be rented to someone else. The opportunity cost of staying there is the amount of rent the company would get. Considering opportunity costs can guide us to more profitable decision-making. We must assess the relative risk of each option in addition to its potential returns. But, sometimes decisions of opportunity also involve more complexity than just comparing something like two different interest rates on investments. So it serves as a tough decision for the managers to make up decisions after considering all possible alternatives.

The idea of Economics is present everywhere in our society. Through our lives, the things around us directly relate to our economy. Music is one of the many areas that play a large role in our lives. For me, the song “Opportunity Cost” by G-Eazy is solely about economics and the way that we need to learn how to balance our everyday lives.

The first three lines go like this: “Everything costs something bro, when it’s somewhere… somewhere else you just lost something yo, the cost of opportunities is always good to know.” The artist, G-Eazy, opens up his song with the same concept that was taught in Microeconomics. Opportunity Costs are what we as buyers and sellers give up to gain something else. For example, we can either go to school, or we can attend college. Both of these alternatives have costs and benefits, but the one that we give up is the opportunity cost. G-Eazy uses this exact example in his song. In one section the artist talks about how he gave up his family life to pursue his career. G-Eazy sings: “Missing every birthday and anniversary, yesterday my mom got out of surgery and I wasn’t even in town, shows and after parties what I’ve been round.” The artist found that his musical career had taken over him and the opportunity cost that he gave up was being there for his mother’s surgery. Opportunity cost is an important idea because it involves balancing two separate things and seeing which options will provide us with the most benefits. G-Eazy learned through his song that he made the wrong choice. At first, the parties and fame was important, but now, he realized that family is what he needed.

Towards the end of his song he states: “Wondering if this rock star life taking a toll on me like I’m asking to die.” Obviously he is not being literal when he talks about death. This one line shows how the artist is beginning the balancing process to determine if being a rock star is really worth it. On one side of his spectrum he has all the full salary jobs, after parties, and good vibes. On the other hand, he has his mother who cares deeply about him and has made a huge impact on his life. The artist attempts to tell the listener his story by talking about how he gave up the wrong things.

This song really means a lot to me because I struggle with same concepts that the artist deals with. No I may not have all of the fame, however, I do try to balance the costs and benefits of my life decisions. Sometimes I don’t know if college is the best place for me, or if I should get a job. G-Eazy uses the song “Opportunity Cost” to explain to listeners that life isn’t just an easy ride. Life requires a large amount of decision making, which means we must give up something at one point or another.

G-Eazy’s “Opportunity Cost” ends with the perfect line, “No stress, bullsh*t gets passed to the side, working hard to make sure I’mma be the man when I die.” The cost of opportunity is good for us to understand in economics. We as buyers and sellers need to understand how to solve the optimization problem of choosing the best option among the alternatives. If G-Eazy was able to do it, then we need to take the same approach. His song may not be specifically about economics, but the ideas he raps about in his verses serve as great teaching if we want to be successful in our economy.

Every day we are faced with the obstacle of making choices that range from what delicious recipe to make to what career path would be the best for my future. Each choice that we make has an opportunity cost and either takes an economic toll on us or reaps a reward. Our lives are constantly influenced by economic trends such as inflation, interest rates and economic growth. Some things we may have little control over and can tremendously change our lives and other things we have more control over.

From a personal perspective, economics frames numerous choices I make regarding my leisure, education, career, consumption etc. By participating in this semester’s economics class, I have a better understanding of how the world works and how to make better decisions based off of thinking from an economical mindset. Economics “offers a tool with which to approach questions about the desirability of a particular financial investment opportunity, whether or not to attend college of graduate school, the benefits and costs of alternative careers, and the likely impacts of public polices” (Department of Economics). One major area economics has helped my decision-making skills and offered that tool was in is parenting.

When it comes to raising our children, there are a great deal of different perspectives. For a better understanding of how economics may apply to parenting, here are two examples concerning tantrums and spankings and time outs. I know everyone has heard of the terrible two’s, for my son it was more like the terrible three’s. A major battle with kids the age of two or three are the temper tantrums. Based off of plenty of evidence, a lot of temper tantrums occur when kids are tired, bored, hungry or over-stimulated. Envision you were out shopping with a two year all day and you wanted to squeeze in one last trip to the grocery store. The benefit would be less trips to the store that week and more items on your to-do list completed. The opportunity cost of that time saving would be the two-year-old breaking down in aisle five with a tantrum because they have reached their limit.

Another example would be how you discipline your child. Many parents nowadays frown upon spanking and lean more towards time outs. If your child misbehaves, we may spank them and hope they tie that unhappy experience with their behavior and will discontinue that specific behavior. The costs of chronic spanking however may lead to long term disobedience and violence according to some studies. Would the short-term solution of spanking be with the long-term cost? Would the long-term cost of using time outs as a discipline method be more productive than spanking? These are things that economics can help us to decide when it comes to parenting.

As parents, it is hard being in the moment, holding on to all of our patience and investing in the work to get through those tough issues, but rest assure the benefits will greatly outweigh the costs.

As a parent, I have learned to weigh the expected costs and benefits of implementing my preferred parenting methods. When it comes to my parenting style, I believe that the authoritative style best reflects me best as a parent. “The authoritative style is one where parents attempt to influence their children’s choices, but they do so by reasoning with them and by shaping their values, rather than through command and discipline”. It is known that parenting within the intensive parenting style that’s purpose is more to control the child’s behavior will most likely come with costs. The benefit is that your child is more likely to engage in the choices that the parents deem appropriate. More direct opportunity costs consist of the time and effort you spend on instilling control and values on your children. More indirect opportunity costs consist of the love and care of a parent and knowing aggressive parenting may impose effects on the child. If the return is high, I am willing to bear the costs of my parenting methods.

Life as we know it becomes all about opportunity costs when we become parents. Whether it be deciding between staying at work one more hour or being with your children for an extra hour or even deciding to continue your career or stay home to be with a full time stay at home mom. Opportunity cost should be part of all parent’s decision-making process. Opportunity cost is an important issue in the context of children’s time as well. If your child is taking guitar lessons, they aren’t drawing. If your child is reading, they aren’t playing baseball. We need to choose wisely for their benefit. Just keep in mind, moderation is key and sometimes we need to all stop being paralyzed by thinking too much and have a little fun.

Orgon was so taken in by Tartuffe that he put aside his feelings for his family because he wanted to be under Tartuffe’s tutelage. He believed that Tartuffe was a soulful, humbled man. The family though is unable to see the great influence of Tartuffe and thinks of him as nothing but a con-artist. They are unable to persuade Orgon otherwise. Dorine states in Act 1, Scene 1 “You see him as a saint. I’m far less awed; In fact, I see right through him. He’s a fraud”.

Tartuffe’s character in the play is shown as a hypocrite and rightfully so as he plays the part of a beggar and a holy man. He’s a snake in the grass waiting and watching to strike his prey. He shows this in Act 3, Scene 6 when he says “Ah, no, don’t be deceived by hollow shows; I’m far; alas; from being what men suppose”. This manipulative gesture as a psychological ploy is an illusion of truth. The method of persuasion that Tartuffe uses, while showing great humility with compelling story-telling, is just one example of his powerful use of reverse psychology. Orgon is so convinced of all Tartuffe’s false confessions that he doesn’t comprehend that Tartuffe is only appearing innocent all the while being completely guilty.

Pope wrote a proposal to H. St. John and Lord Bolingbroke prior to the Epistles. In the Design he stated that he wanted “to write some pieces on human life and manners”. He first explained that he wanted to begin by understanding “man in the abstract, by his nature and his state”. Pope wanted to consider the quality of man’s essence when writing whether man’s nature is inherently good or bad. He wanted to infer man’s flaws and integrity of not just man, but of all creatures. To do this he was looking into discerning the knowledge of what “the conditions and relations” of man were in correlation to God before beginning to write his letters.

Pope proposed a system of ethics in a form of verse for two reasons; first “to strike the reader more strongly with precepts and secondly that may it be retained more easily afterwards” when read. Pope believed that this was a “general map of Man”. There are limits to the connections that man has with God because man is fallible. Pope understood this when making a compendium by which man could follow in his four Epistles. As Phaedra states in Act 1, scene 2 “The gods have made me mad”, meaning she the entire time she believes it was her not fault that she has these sickening thoughts about her stepson. There are many times throughout the play she eludes to the Gods.

Opportunity cost is the fee of something while a specific path of action is chosen. Opportunity fee is the fee of the next pleasant alternative foregone. If a person starts a brand new business by giving up his earnings of $30,000 according to month then $30,000 might be the opportunity value of starting a new enterprise. Simply positioned the possibility price is what you need to forego so one can get something. The gain or cost that turned into given up can check with decisions in your private life, in an agency, inside the economic system, in the surroundings, or on a governmental level. Opportunity value refers to the loss of capacity advantage from you choosing one alternative from some of the exchange alternatives. For every choice you make, there is potential gain you misplaced out on with the aid of choosing that alternative. Opportunity fee is what is given up whilst a scarce useful resource is utilized in a sure way. Thus, by attending university, a student would be earned via operating at a task completion time. Generally, when a scholar attends college full time, the pupil delays entry into the personnel on a complete-time foundation until college is finished.

Let’s do not forget a pharma business enterprise which is planning to work on a brand new product or drug which stocks a bit little bit of similarity with the earlier initiatives, for this reason, it enjoys the assist of subject relies upon experts. In this new thought, implicit and specific fees might be concerned. Let’s understand the explicit fees worried.

Explicit prices are out-of-pocket prices, this is, payments that are certainly made. Wages that a company will pay its employees or rent that a company will pay for its office are express prices. The explicit fee is the value that is paid immediately and it’s miles contrary to implicit price. Explicit price is the price of including more employees, the uncooked cloth for the production of a brand new product, etc

These are the direct charges concerned in developing and marketing the product. This includes costs of hiring exertions, cost of using automation, new stock offered, advertising costs, and so on.

Extra income for extra Manpower- Though situation count number information could be available but additional full-time personnel could be required to execute the new system. Certainly, it’s going to incur the more value in a few greater areas inclusive of new.

Raw materials, taking help of representative in case if any difficulty is past the functionality of in-house experts. Like those few greater factors are there which may additionally come along while the brand new product is being developed.

Costs ensuing in an instantaneous outflow of coins from the enterprise are termed as express expenses. These expenses are incurred for the duration of the manufacturing process or the regular course of movement of the business. Explicit costs are incurred due to the utilization of things of manufacturing which includes capital, land, exertions, etc.

Explicit charges are paid within the shape of wages, cloth, income, energy bills, and other overhead miscellaneous charges. Explicit expenses are clean to understand and preserve music off. They are recorded after they rise up and are calculated in terms of cash. Keeping a file of specific price proves to be very important because it facilitates in purposes of calculation of profits, price controlling, selection making, and so on.

Implicit cost is more subtle however simply as essential. They constitute the opportunity fee for the use of assets already owned by way of the company. Often for small organizations, they’re sources contributed by means of proprietors; as an example, running within the business at the same time as no longer getting a proper revenue or the use of the ground floor of a home as a retail keep. Implicit charges also permit for depreciation of products, substances, and equipment that are important for an employer to function.

The implicit fee is equal because the opportunity price of the company which indicates how lots a person or company has to sacrifice to be able to use an aspect of production for which it already owns and consequently does now not pay rent. Implicit cost is the cost which firm sacrifices which will introduce a brand new product within the marketplace. Implicit prices could be supporting the enterprise run value on a daily foundation. In addition to it, different prices which would be factored in for implicit costs could be small investments in the work for R&D prices and each day overview of the projects.

While thinking about the long-time impact of this task, brief-run fees could be the overall cost incurred until the final product is prepared meeting to all the product specs, whilst the long time costs might be supported to clinical trials and all of the other investigative review of the product until the market authorization. In the quick run, the price incurred is each variable and fixed, however, ultimately, all price is variable in nature.

Before taking the macro economics class and completing the four graded discussions I didn’t know much about what opportunity cost mean. Now as we headed to the end of the term and studied the topic I have learned a lot and know much more about what opportunity cost mean and how it works.

If someone asked me just a little more than a month ago “what does opportunity cost mean?” than I would probably have an answer similar to that; “opportunity cost is the act of choosing one thing over the other”, which now I know is just partially right and there is a lot more than just “choosing one thing over the other” to it. According to a study from 2005 by Paul J. Ferraro and Laura O. Taylor of Georgia State University, “only 21.6 percent of the professional economists surveyed chose the right answer to question asked about opportunity cost… and among college students who had taken a course in economics, only 7.4 percent answered correctly, compared with 17.2 percent of those who had never taken one.”

Now after almost finishing this course in Microeconomics I feel like I have learned so much and my old answer would be to generalized and would not satisfy anyone who wants to know what is opportunity cost. If I was asked now after studying this “what does opportunity cost mean?” my answer would be much more specific and satisfying so that even someone who has no clue about what is opportunity cost would have a good understanding of it. My answer to what does opportunity cost mean starts an example; so let’s say you want to buy new shoes and you to decide either buying shoes from a new collection which costs $200 or buying shoes from the old collection which costs $100, so you have a choice to make of which shoes to buy. Both shoes are new, but there is a choice to make to either go and buy the more expansive ones because they look better and are from the newer collection or go for the less expansive shoes. Let’s say you decided to buy the new collection shoes for $200, so what is the opportunity cost? Or in other words what did you give up to buy the shoes? The opportunity cost is $100 which is what was the difference between the two shoes. If you had bought the old collection shoes for $100 then you would have still had $100 more which you could have invested, saved, or get something else you needed with the money.

The reason I think everyone should learn and know what is opportunity cost is because people deal with similar decision in their everyday lives. It has to do with almost every decision people make and if people understood this topic more in depth, then I believe many of their everyday lives decision would change and in turn help them become more wealthy and knowledgeable about their money.

Economic is the knowledge of how humans making choices in the face of scarcity. We are living in a world that resources are limited and the need of the people are unlimited, the economists are looking for an easy way to allotted sources by opportunity cost. The concept of opportunity cost most of the time use in business for analyzing the existing sources. Sometimes in scarcity of resources we are making a decision instead of another one, it is the opportunity cost. If we have a choice in a multiple-choice. Opportunity cost does not limit to the financial, It also involves the value.

Consider that a person who has 50$ can either buy a book or a dress. If she buys a book, her opportunity cost will be clothes, and if she buys clothes, her opportunity cost will be a book. If the number of possible choices for this person is more than 2 and she chooses one, her opportunity cost will be the best choice among the remaining choices.

I am going to mention some of the opportunity cost that I have faced in my life. Five months ago, I decided to trade online. I searched many websites, read various articles, and passed a course in Coursera about trading online. Finally, found multiple-choice, investing in cryptocurrency, trading in Aliexpress, Alibaba, Amazon, and investing in stocks. I made a decision to invest in cryptocurrency because of various reasons. Cryptocurrency is new in the world, it has a high return, security, and your money is yours alone. After two months realized that I am not professional at trading in cryptocurrency, lost most of my money because of a lack of risk management. Lost opportunity trading in Alibaba, Aliexperss, and Amazon is the cost opportunity That I have paid. If I bought products from these online websites and sold them on the regional website (Opensouq), I have a lot of return and have been expanded my trade.

When I was in high school, I have a dream to be rich at the age of 24years old. I had three choices for achieving my goal:

1. Pursuing my school and university to get a degree in business.
2. Opening a store working hard until to be rich.
3. Working in-store, and pursuing my studies at the same time.

But I chose to pursue my studies to get a degree in business administration. If I chose to pursue my degree and open a store in my local. I will be a good invertor and trader.