Economistsin the contemporary world have refuted the connections between laborand sacrifice to be equated to the real cost. They have instead comeup with the idea of opportunity cost, which is central to the theoryof economy. It was first proposed by an economist from Austria by thename Wieser (Ma, 2016). Daven Port, Robbins, and Knight have alsocontributed notably to the development of opportunity cost as aneconomic aspect. The foundation of the idea is that there arescarcity and versatility of the factors of production.
Ideally,human wants are unlimited but the means of satisfaction of the samewants are limited. However, there are always available alternatives.This is the root of the choice problem, which is the principledefinition of economics put across by Robbin.
Literary,the opportunity cost of any given substance is the foregonealternative. This means that an item can be manufactured only byforegoing the cost that could have been incurred to produce anothercommodity in the same setting (Ma, 2016). Adam draws his argumentsabout opportunity cost from the hunter’s perspective. He arguesthat a hunter is capable of bagging a deer or a beaver in a day. Hefurther goes ahead to assert that the cost of him bagging a deer is abeaver and the cost of him bagging a beaver is a deer. A man marryinga certain girl is doing it at the expense of the other. He cannotmarry both of them at the same time. Contemporary economists havegone further to describe it as the value of the best alternativeforegone in cases where a choice is made. But does opportunity costidea have any importance in the economical field?
Significanceof the foregone cost
Opportunitycost has been used, in most cases, to determine the relative cost ofitems (Ma, 2016). For instance, let us assume that a certain side oftimber can be used to make two tables or four chairs. In cases ofdetermining the prices, the price of the two tables will be relatedto the four chairs. Since one of them was foregone the prices willtend to be the same or close.
It has also been used to fix the remuneration to a certain factor(Ma, 2016). It is essential when it comes to putting prices to agiven factor. Employment is the best example that can be used withinthis area. A medical professor can forego being a lecture in auniversity and move out in the corporate world and earn a total of$6000 per month in a Non-Governmental Organization. It is, therefore,necessary for the University to fix his remuneration slightly abovewhat he can earn outside to retain him.
Opportunitycost, also, plays a vital role when it comes to effective allocationof resources (Ma, 2016). The idea has been used by economists andmanagers in their daily struggles to make sure the availableresources are efficiently allocated to realize maximum profits. Forinstance, the opportunity cost of making one table is three chairsand one chair costs $100 while on the other hand, the table costs$400. In such a case, it is efficient for the person to channel hisresources in the manufacture tables since it will be more profitable.
Thediscussion brings out clearly the importance position occupied by theconcept of opportunity cost in the field of economics. However, theconcept has several drawbacks which the contemporary economists shyaway from.
Ma,Y. (2016). Decision-making in safety investment: An opportunity costperspective. SafetyScience, 8331-39.doi:10.1016/j.ssci.2015.11.008