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Opportunity Cost: Decision Making in Everyday Life
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.
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