Some uses (importance/applications) of the concept of opportunity cost
- It helps the producer in allocation of resources. That is, determining what to produce, when produce, how to produce, where to produce and for whom to produce
- It helps consumers in making consumption choices. That is, consumers choose to buy a commodity that maximizes utility.
- It is used in pricing factors of production. That is, the price of a factor of production must be placed at a higher level than its opportunity cost.
- It is applied in international trade under the principle of comparative advantage in which a country specializes in the production of a commodity where it has the least opportunity cost.
- It is used in planning and budgeting for public and private expenditures in presence of scarce resources.
- It helps workers to make employment decision, based on the opportunity cost of leisure
CATEGORIES Economics
TAGS Dr. Bbosa Science
