The Fundamental Principles Of Microeconomics Essay

The Fundamental Principles Of Microeconomics Essay

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Perhaps one of the most fundamental principles of Microeconomics is that people face tradeoffs. According to Mankiw, “making decisions requires trading of one goal against another.” This situation of facing tradeoffs stems from the concept of scarcity - which in essence is limited resources - forcing one to make decisions and tradeoffs between several options. A concept well associated with this is opportunity cost - which is defined as how much one has to give up (the cost) in order to get the good or service (generally the alternative desired or wanted). Opportunity cost is also commonly defined as “the value of the next best alternative in a decision.” This concept of opportunity cost may be difficult to grasp as a bare definition but applying it to a situation may simplify and clarify the concept allowing a more universal understanding of it. To better our understanding of this concept, let us analyze the following scenario and assess the opportunity cost associated with it.

Assume that I have $150 to see a concert - either seeing “Hot Stuff” or “Good Times Band.” Both concerts cost $150 for a ticket but you I the “Hot Stuff” concert more at $225, while accessing the value of “Good Times Band” at $150 - the same as the monetary value of the ticket. While “Good Times” is performing right in town, “Hot Stuff” is performing in a town a couple of hours away. The most striking twist in this situation is that you have to be in school the next morning for an exam.

At this point, we can assess several opportunity cost associated with seeing “Good Times” in concert. First, there is a monetary value that is significant in this hypothetical situation. Simplying looking at the cost of a ticket to either concert, there is no d...

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...ty cost.

For me personally, I would not attend either concert and spend time at home studying. Besides the $150 ticket price, there are many costs associated with going to either concert. With the money for food, money, and the time spent going to either concert factored into my analysis of the opportunity cost, my valuation would determine that it would not be worth going to either concert and that studying for that exam the next day with the possibility of raising my grade is worth much more than a concert experience could provide.

All of us face tradeoffs and incur opportunity costs throughout our lives. For some people, the costs outweigh the value of the good or service. It is ultimately up to us to assess and analyze the choices, tradeoffs, and opportunity costs provided and make decisions of what we value the most and the ramifications of those decisions.

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