Since you are reading this, it can be safely assumed that you have made a choice to study economics. The question that arises here is – what is the opportunity cost of your choice to study economics?

Before we formally define opportunity cost, you need to do the following:

Reflect on the cost of this choice by considering the following two questions:

- How much does it cost you to study economics?
- What did you give up to study economics?

The easier question to answer is the one about how much it will cost you to study economics. This is usually interpreted as meaning how much money you would have to pay to study the course. This would include the course fee which, in 2017, is R1 950 for ECS1501 (the course you are registered for). If you require a textbook for the course, then the cost of the book becomes part of the cost of studying economics. This also applies to any printing costs.

If these costs are paid by your parents, family members or a bursary scheme it might cost you nothing, but the cost is borne by someone, which means that it is by no means free.

The second question is a more tricky, and goes to the heart of the concept of opportunity cost. The question is – what would you be doing if you were not studying economics?

These costs could be in the form of wages that you could have earned instead of using your time to study; or it could be those things you could be doing if you were not studying.

To determine the opportunity cost of studying for this course, you need to include not only the monetary cost of studying the course, but also those things that you have to give up in order to study. Opportunity cost is therefore a broader concept than simply the amount you have to pay, because it also includes the best alternative that you have to give up in order to do what you are doing.

Based on the above, we can formally define opportunity cost of a choice as follows:

*"Opportunity cost is the value to the decision maker of the best alternative that is given up."*

### Choose the correct option below:

Assume you have decided to go to see a movie instead of reading a book, taking your dogs for a walk or taking a nap. Part of your opportunity cost of going to the movies is therefore…

Since opportunity cost is the value of the best alternative that is given up is does not include the value of all the alternatives that are given up, but only the value of the best alternative. If that best alternative for you is not reading a book the value lost of not reading a book is part of your opportunity cost of going to the movies.

Assume the move ticket cost you R50 then the opportunity cost is:

Opportunity cost is a broader concept than simply the amount you have to pay, because it also includes the best alternative that you have to give up in order to do what you are doing.

It is therefore the cost of a movie ticket plus the pleasure of not reading a book if reading a book is the best alternative that is sacrificed.

#### Activity

**Do the following activities on opportunity cost.**

### You are given the following information about a student who is studying economics:

Course fee: | R2 000 |

Internet connectivity: | R300 |

Hardware and software cost: | R1 000 |

Cost of food: | R3 000 |

Travel cost to examination centre: | R120 |

Wages the student could have earned if not studying economics: | R8 000 |

Calculate the opportunity cost for the student to study economics.

It is R11 420. The only item that is not included in calculating the opportunity cost is the cost of food. Even if the student is not studying, he or she still has to eat.

### It is Saturday, and Mpho decides to attend a soccer league match which costs her R250 and takes up two hours of her time. If she had not attended the soccer match, she would have read a couple of magazines.

Her opportunity cost to attend the soccer league match is:

It is correct.

She pays R250 for the match and loses the value of reading her magazines. The R250, plus the satisfaction of reading magazines, is her opportunity cost.

Think again.

Opportunity cost is a broader concept than simply the amount Mpho have to pay, because it also includes the best alternative that she gave you have to give up in order to do what she is doing.

She pays R250 for the match and loses the value of reading her magazines. The R250, plus the satisfaction lost of not reading magazines, is her opportunity cost.

Think again.

She pays R250 for the match and loses the value of reading her magazines. The R250, plus the satisfaction lost of reading magazines, is her opportunity cost.

Think again

Opportunity cost also apply to recreational activities. In this case Mpho had to make a decision about which recreational activities to do. Her choice is to go to the match and her opportunity cost is the R250 she pays for the match plus the satisfaction lost of not reading her magazines.

### It is Saturday, and Peter decides to attend a soccer league match which costs him R250 and takes up two hours of his time. He is supposed to mow the lawn, but decides to hire someone to do it at R50 per hour while he is at the soccer match. It will take two hours to mow the lawn.

His opportunity cost to attend the soccer league match is:

Think again.

His opportunity cost must now also includes the R100 he pays for someone to mow the lawn.

His opportunity cost is the R250 for the soccer match and the R100 he pays for someone to mow the lawn.

Think again.

His opportunity cost includes the cost of the soccer match of R250.

His opportunity cost is the R250 for the soccer match and the R100 he pays for someone to mow the lawn.

It is correct.

His opportunity cost is the R250 for the soccer match and the R100 he pays for someone to mow the lawn.

### Glenda works as a consultant and earns R500 per hour. It is Saturday, and she decides to attend a soccer league match instead of working. The cost of the soccer match is R250 and it takes up two hours of her time.

Her opportunity cost to attend the soccer match is:

Think again.

She needs to include the earning lost of R 1 000.

Her opportunity cost is therefore equal to the R250 for the soccer match and the R1 000 she loses by not working.

Think again.

She needs to include the cost of the soccer match of R250.

Her opportunity cost is therefore equal to the R250 for the soccer match and the R1 000 she loses by not working

She needs to include the cost of the soccer match of R250.

Her opportunity cost is therefore equal to the R250 for the soccer match and the R1 000 she loses by not working