Opportunity cost

Although the opportunity cost (opportunity cost) is sometimes difficult to quantify, the effect of opportunity cost is universal and very real at the individual level. In fact, this principle can be applied to all decisions, and not just economic. Since its appearance in the work of a German economist named Freidrich von Wieser, opportunity cost is seen as the basis of the theory of marginal value.

Opportunity cost is one way to measure the cost of something. Rather than merely identifying and adding costs to the project, but also identify alternative ways to spend an equal amount of money. The advantage would be lost as a result of the next best alternative is the opportunity cost of the first choice. A common example is a farmer who chooses to farm his land rather than rent it to neighbors. Thus, the opportunity cost is the forgone profit from renting. In this case, the farmer may expect to obtain greater benefits from the work he did himself. Likewise with the university to enter the lost wages that would be acceptable if you choose to be workers, who compared the cost of tuition, books, and other necessary goods (as the total cost of attendance at the university). Another example is the opportunity cost of a vacation in the Bahamas, which may be the money for mortgage payments.

Please note that the opportunity cost is not the number of available alternatives, but rather the benefit of a best alternative. Possible opportunity costs of the city's decision to build the hospital on vacant land are the loss of land for a sporting center, or inability to use the land for a parking space, or money that can be gained from selling the land, or loss of other uses - diverse - but not the aggregate of all (ditotalkan). The real opportunity cost, an advantage that will be lost in the largest number among the alternatives that have been mentioned earlier.

One question that arises here is how to calculate the benefits of alternatives is not the same. We must determine a dollar value associated with each alternative to facilitate comparison and assess opportunity cost, which may be more or less difficult depending on the things we are comparing. For example, many decisions involve environmental impacts whose dollar value is difficult to assess because of scientific uncertainty. Valuing a human life or the economic impact of oil spill in Alaska, will involve making subjective choices with ethical implications.