Opportunity cost is the real cost of making a choice on how to allocate resources. It is defined as 'the next best alternative forgone' and is a vital concept to understand in the first week of any economics course.
The trick is to apply the concept to the real world. Below are links to two articles from recent days. They look at two examples of applying opportunity cost.
The first is about decisions made by Britain's National Health Service (NHS) on which cancer drugs to pay for. Britain's health service is funded through taxation and is 'free at the point of use'. The problem is it has a fixed budget from the government and so the NHS must decide which treatments to fund. The NHS is left with the unpleasant fact that when they choose one treatment they can't fund another and some people go untreated. (Actually they get other less effective drugs or palliative care.)
The second article looks at the dilemma of an American Football Club which also has a fixed budget. They must decide which players to hire/retain. If they pay one player a great deal of money then they can't hire or retain a number of other players.
Read the articles and answer the questions below.
Questions:
1. Identify all the examples of scarcity and opportunity cost in the articles
2. Using examples from the articles explain how there is always an opportunity cost for any choice.
This post is relevant to all students of economics.
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