Economics - Opportunity Costs
A footwear manufacturer, who decides to produce more joggers with its
limited resources, will find it must produce fewer shoes. The decision to
use more machines to produce joggers and shoes means fewer jobs for people,
and a decision to produce the joggers and shoes overseas means less income
for the manufacturers home country and fewer jobs.
Governments face many decisions, including:
* How to tax people.
* What to spend money on.
The opportunity cost of the government spending more on defence may be
hospital patients waiting longer for elective surgery because funds are
taken away from the health system.
Examination of opportunity cost leads to improved and effective decision
making. Unlike an accountant who worries about the financial cost of a
choice, economists are interested in making the best decision. By this we
mean comparing the benefits with the costs. Instead of the government
worrying about how much money it will cost to build a new public hospital,
for example, it would examine the benefits/satisfaction gained by consumers
if the hospital is built and the benefits/satisfaction lost by not using
the resources in an alternative project. Decisions are based on a
cost/benefit analysis rather than dollars and cents.
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