Opportunity Cost in Economics

The value of the next best alternative forgone

Explicit costs require a money payment, while implicit costs do not require a money payment.

The opportunity cost for star athletes includes the potential earnings they could make as professionals instead of attending college.

<p>Economists use opportunity costs to analyze decisions made by firms and individuals in order to maximize profit.</p> Signup and view all the answers

<p>Tuition fees</p> Signup and view all the answers

<p>The amount of money a student could have earned if they had worked instead of attending school.</p> Signup and view all the answers

<p>Scarcity means that resources are limited and there are not enough resources available to satisfy everyone's wants.</p> Signup and view all the answers

<p>Opportunity cost is what you must give up when you make a choice, or the value of the next best alternative foregone.</p> Signup and view all the answers

<p>Milton Friedman means that in a world of scarcity, everything has an opportunity cost, implying that nothing is truly free.</p> Signup and view all the answers

<p>Scarcity necessitates choices due to limited resources, leading to opportunity cost as individuals must give up one option to pursue another.</p> Signup and view all the answers

<p>Accounting profits consider explicit costs, while economic profits also account for implicit costs, such as opportunity costs.</p> Signup and view all the answers

<p>Accounting profits focus on explicit costs like wages and rent, while economic profits include implicit costs like opportunity costs, making them different measures of profit.</p> Signup and view all the answers

<p>Opportunity costs also include implicit costs, making them higher than explicit costs.</p> Signup and view all the answers

<p>Implicit costs are difficult to measure.</p> Signup and view all the answers

<p>They use opportunity costs to make key decisions.</p> Signup and view all the answers

<p>The economic profit is lower due to the inclusion of implicit costs, such as the opportunity cost of giving up teaching banjo lessons.</p> Signup and view all the answers

<p>His economic profit would increase despite the rise in explicit costs.</p> Signup and view all the answers

<p>Understanding opportunity costs helps in evaluating the true cost of choices and making informed decisions.</p> Signup and view all the answers