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Understanding Opportunity Cost- The Economics of Decision-Making

Understanding Opportunity Cost- The Economics of Decision-Making

According to Okun (2015), a trade-off does not mean that a pleasing choice to one person is necessarily unpleasant to another. Weiss and Kivetz (2018) posit that opportunity cost arises from the failure to follow through with one choice and can be defined as the value of unrealized utility from the overlooked choice. Accordingly, trade-offs and Opportunity Costs are interrelated because their association can be observed in real-life scenarios.

An example of a time when I had to choose between two options relates to choosing between engaging in leisure activities with my friends or working part-time at a local restaurant. Some of the things I had to consider when making the decision were; the opportunity cost of enjoying leisure activities and the amount of money I would end up spending on different leisure activities versus the amount of money I would generate by working part-time. I traded off leisure activities and gave up benefits such as enjoying great and fun moments with my friends, which I would have gained if I chose to engage in leisure activities rather than taking up a part-time job.

However, there are times when I have made a choice, and the opportunity cost was higher than anticipated. For example, I once made a choice to go out with my friends on a Friday night rather than concentrate on my schoolwork. Primarily, I had planned to work on a project the following day, but we over-indulged in the merry. Eventually, I could not submit my project on time, which cost me some marks. Given a chance, I would make a different decision since the opportunity cost for trading off time for school work with leisure activities was greater than I anticipated.

References

Okun, A. M. (2015). Equality and Efficiency: The Big Tradeoff. Washington, D.C.: Brookings Institution Press.

Weiss, L., & Kivetz, R. (2018). Opportunity Cost Overestimation. Journal of Marketing Research, 1-67.

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Question 


Primary Response: Within the Discussion Board area, write 200–250 words that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions with your classmates. Be substantive and clear, and use examples to reinforce your ideas.

Understanding Opportunity Cost- The Economics of Decision-Making

Understanding Opportunity Cost- The Economics of Decision-Making

For this Discussion Board, please complete the following:

When faced with a trade-off, there is an opportunity cost. Opportunity cost is the cost of what is given up when you make a different choice. Trade-offs are when you give up one thing to get another. Opportunity cost occurs even when you have a choice between two good options.

Please watch this video on opportunity cost and trade-offs: Opportunity Costs vs Trade-Offs. Then, discuss the following:

Describe a time when you had to choose between two options. What did you consider when making the decision? What did you give up when you made your choice?
Describe a time that you made a choice and the opportunity cost was higher than you thought it would be. Explain why you might make a different decision if given the chance.

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