Opportunity cost

Lead-in

Express your opinion on the following issues.

1. Is scarcity an economic or social issue?

2. Is it possible to solve the problem of scarcity? Why?

Key Vocabulary

Study the following list of vocabulary.

1. scarce/ limited resources	дефицитные, ограниченные ресурсы
2. save v	копить, откладывать, экономить
3. reduction n	снижение, понижение, сокращение
4. value n	ценность, стоимость
5. efficient adj	действенный, результативный, эффективный
6. restrict v	ограничивать
7. financial costs	расходы по финансовым операциям
8. utility n	полезность
9. assess v	оценивать, давать оценку
10. cost n	стоимость
11. loss n	убыток, ущерб, потеря
12. purpose n	цель, намерение
13. prevent smb from	предотвращать, предупреждать
14. implement v	выполнять, осуществлять
15. application n	применение, использование

Pre-reading Activities

Match the words on the left with those on the right. Then translate the expressions into Russian.

1. make	a. costs
2. scarce	b. choice
3. opportunity	c. money
4. available	d. decisions
5. financial	e. cost
6. earn	f. land
7. sell	g. alternatives
8. career	h. resources

Reading

Read the following text and be ready to explain what “opportunity cost” means.

Economists are concerned with how we make choices in a world of scarce resources. Individuals, families, business firms and governments must make decisions about how best to allocate limited resources. But when resources are limited, choices are limited as well. This means that the decision to have one thing is, at the same time, the decision not to have something else. Suppose, for example, that the government chose to pay for the increase in the size of its air force with the money it had saved by building fewer schools. In that case the increase in defense was paid for by a reduction in the number of schools.

So, the opportunity cost of any decision is the value of the next best alternative that is given up. The concept of opportunity cost was first developed by John Stuart Mill. It is a key concept in economics. It has been described as expressing the basic relationship between scarcity and choice. The notion of opportunity cost plays an important role in ensuring that scarce resources are used efficiently.

It is important to understand that opportunity costs are not restricted to financial costs, but lost time, pleasure or any other benefit that provides utility should also be considered as opportunity costs.

Assessing opportunity costs is fundamental to assessing the true cost of any course of action. However, opportunity cost is not the sum of the available alternatives when those alternatives are mutually exclusive to each other. The opportunity cost of the city’s decision to build the hospital on its vacant land is the loss of the land for a sports center, or the inability to use the land for a parking lot, or the money which could have been earned from selling the land, as using any one of those purposes would prevent the possibility to implement any other. It is also the cost of the forgone products after making a choice.

In the science of economics the concept of opportunity cost has a wide range of applications, including a consumer choice, production possibilities, cost of capital, time management and a career choice.