Opportunity Cost outside Markets.
The concept of opportunity cost is particularly crucial why you are analyzing transactions that take place outside markets.
Bow do you measure the value of a road or a park? Of a health or safety regulatio~? Even, the allocation of student time can be explained uSing opportunity cost.
The notion of opportunity cost explains why students watch more TV the week after exams than opeek
before exams. W,atching 1V right bean exam has a high opportunity cost, for the, rnative use of time (studying) has high value
improving grade performance and getting a job. After exams, time has a lower opportv cost.
Say the federal government wants to drill for off the California coast. A storm of comints is heard. A defender of the pro$ram
tes, “What’s ~1I the ruckus about? There’s Wible oil out there, and there is plenty of water to go around. This is very low-cost oil
r the nation.” In fact, the opportunity cost , ht be very high. If drilling leads to oil spills t spoil the beaches, it might reduce the
recreational yalue of the ocean. That opportuirv cost might not be easily measured, but it’s C’\ef)’ bit as real as the value of oil under the ters.
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