opportunity cost in economics

In economics, the cost of an event is the highest-valued opportunity necessarily forsaken.

Why do we need to say “necessarily” ??? :confused: :confused: :confused: Many thanks.

As in “out of necessity”. The opportunity cost of producing “A” is what you give up to produce “B”. Because your productive inputs must be dedicated to producing A, it is “necessary” to use them for A, not B.

As a high school Economics teacher I tell the students “What could you have done with the seven hundred dollars spent on the Prom instead?” that is the opportunity cost…(they still opt for the prom)

Thanks so much for the replies. In fact I have two questions.

Getting A implies giving up B. ----- K

Q 1)

Statement K means giving up B is a necessary condition for getting A. The former is also the cost of latter, and thus we say the cost of an event is the highest-value opportunity
“necessarily” forsaken. The word “necessarily” shows that paying the cost of something is the necessary condition for getting that thing. Is that right ??? Thanks.

Q 2)

But statement K says nothing about whether giving up B is a sufficient condition for getting A or not . So “necessarily” also tells us that we cannot make sure we can get somethng or not even we have paid the cost. Is that right ??? Many thanks.

Right on both counts. That is why it is “opportunity” cost, not simply cost.

The examples typically given for opportunity cost are a bit simplistic, and it sounds like you grasp the concept well, but here goes.

Suppose we have 100’ of wood, a table saw, and a skilled woodworker who can either make 4 tables or 2 chairs per day. Wood, saw and carpenter are our natural, capital and human resources; viz. our productive inputs. The “opportunity cost” of making 2 tables is the “opportunity” to make 4 chairs, which we must “necessarily” give up in order to make the tables.

Giving up the opportunity to make 4 chairs does not assume successfully completing 2 tables although (ideally) the same productive inputs were used. Furthermore, opportunity cost applies only to production, not to profit.

thanks so much for your reply. :slight_smile: