It’s economics period and my teacher introduces the “Law of Diminishing Marginal Utility” to the class.She then goes on to explain a concept called “Opportunity Cost” and how its is important when making choices economically.At the end she instructs the whole class to memorize the law and by next day we should know it like the back of our hands. There I sat staring at the blackboard,”Is this ever going to be important later on in my life?”,I mean unless of course I do decide to take a Major in Economics,which by the way was very unlikely at that time.
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen. It is basically the sacrifice one makes in relation to the second best option available to them.It explains the relation between scarcity and choice. The concept of opportunity cost was first developed in 1914 by Friedrich von Wieser in his book “Theorie der gesellschaftlichen Wirtschaft”.To put it simply,choosing whether I need to buy a new jacket that would look fabulous with my indigo jeans or a pair of shoes that would be perfect for work,while on a budget.So which of the two I am I willing to forgo to derive the benefits of just one?
So today I sit here,having a situation where I have to make the choice of an opportunity cost and as I take the decision I wonder about the value of the thing I am forgoing,which is tough to say the least.And now I understand the importance of that class,apart from understanding the fundamentals of economics,it was important for my fundamentals in life .It doesn’t have to be in monetary terms but could be anything from lovers,to a job or to obligations.I’m sure you know how it feels,so I really don’t need to elaborate.Well even post making a choice,there is still that ringing in your ears,is this really worth it?Yes there are times when you are perfectly happy with the choice you have made and there is no turning back,that would be more in relation to buying clothes or choosing a brand of orange juice.It really doesn’t affect you in the long term.Whereas like I mentioned,there come those moments in life when you think,”Oh my god should I be doing this?”As this decision may play a very important role later in the future course of one’s life.Now there is a sort of psychological consolation you can make to yourself regarding the decision-making in the latter,with relation to the number of doors that it opens.Ok let me explain it like my economics professor. (can’t forget her,she really made those classes fun and at the same time terrifying)
Opportunity cost has been seen as the foundation of the marginal theory of value as well as the theory of time and money. In some cases, it may be possible to have more of everything by making different choices; for instance, when an economy is within its production possibility frontier-the benefits arising from two options using the same factors of production or resources.So therefore making a choice of something where you see the most benefits and at the same time requires a lot of time,calculation and deliberation to reach a final solution.Now two choices will obviously have their own benefits and that is where the problem always arises.For Example:So what are you going to have for breakfast tomorrow?Eggs,Bacon and Coffee; Eggs,Bacon and Orange Juice;Eggs,Bacon,Coffee and OJ;Cereal and OJ; or all of it??(My given choices intend to reflect the positive and negative nutritional value of each item,but at the same time you need to consider the quantity as well the time you have in the morning)
Why am I sharing this with you?Well it struck me how the opportunity cost,plays an important role at every single step.Plus just watched the ‘Freakonomics-The Movie’ yesterday,so feeling a bit inspired.
Note:I’m open to healthy criticism on the above!!!