Define and explain the concept of opportunity cost. Opportunity cost is defined by Sloman and Norris as (1999, pg. 09) “the cost of any activity measured in terms of the best alternative forgone.” It is important to note that the definition refers to the best alternative forgone, not the top three alternatives or top ten. Opportunity cost is only concerned with the result of making a particular decision and the losses incurred or the impact that choice will have. Making what may be considered to be the right decision at the time is based various criteria, some of which will be influenced by personal values and experiences.Opportunity cost is an important concept in economics as it can be used to predict the feasibility of one decision over another. It shows how the decision to increase the input of resources to one area could dramatically affect the output in another area. A simplified example is a country that only has two major exports, rice and wheat. The country has maintained an even balance for many years but climatic changes now dictate that only one type of crop can be grown for six months of the year. The country must make a decision as to whether they will benefit more from growing either wheat or rice. The government calculated that it is significantly more profitable to grow and export rice so a decision is made to grow more rice. The opportunity cost of this decision is that there will be a decrease in the production of wheat resulting in an increase in the price of wheat products....
