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Due
to the existence of the economic problem economic agents are forced to make
choices regarding how resources are to be allocated.
You
have £40, do you spend it on a t-shirt or a night out? Does the government
spend £100 million on healthcare or weapons?
A
rational economic agent will choose whatever gives them the greatest amount
of satisfaction (economists call this utility).
The
utility you lose from not being able to have your next best alternative (the
second choice) is called the opportunity cost. If you spend £40 on a night
out the opportunity cost will be the t-shirt. If the government spends £100
million on weapons the opportunity cost will be healthcare. If a school
decides to spend £1,000 on a new computer the opportunity cost will be 20
tables.
 Further
Reading
Opportunity Cost
Produced by Drexel University
Opportunity Cost
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