Opportunity Cost

Opportunity Cost
Name
Institution
Opportunity Cost
Introduction
When it comes to making personal decisions about one’s finances, it is important to economically analyze the situation using opportunity cost principle. The principle requires us to choose between two of the available options then make a decision by analyzing the comparative advantage over of my choice compared to the other options presented. With the tough economic times, individual’s incomes are overstretched; therefore opportunity cost is appropriate; it provides specific knowledge about the varied choices of products or services. Opportunity cost principle is not just about how people utilize funds, but its purpose is to analyze the equilibrium quantity and price of a product, to provide the benchmark under which a person can make the best choice among the existing alternatives, in satisfying one’s needs (Levitt, 2012).
Example of How to Apply Opportunity Cost
There are many situations when people are faced with decision that needs to apply the opportunity cost principle. For example, back then I was forced to decide between buying light meals for lunch to have a decent lunch as it was common trend. This gave me the opportunity to stretch a bit and leave the office as I had been working throughout the day. I had to use opportunity costs to consider between buying a descent lunch and saving the money for future use, in a mindful way. Looking at the utility benefit of good food, it is a marginal utility that would result to sunken costs because once the money is spent it cannot be recovered. In this case, it would not add value to my savings. If I put, for example, $ 4.50 into savings it would earn interest. To avert risks, I prefer...