Lessons 3 · 1 lessons · E. Sariqov, B. Khaydarov. Foundations of Economics, Grade 8. “Huquq va Jamiyat” Publishing House, Tashkent, 2019
3
Choice and its opportunity cost
Textbook: pp. 16–19
GoalDistinguishes choice, alternatives and the opportunity cost of a choice, explains a compromise choice and finds an opportunity cost with simple calculations.
New words
choice: picking one of the ways of using limited resources · tanlovalternatives: possibilities that are given up when one is chosen · muqobil imkoniyatlaropportunity cost: the most valuable of the possibilities given up · muqobil qiymatcompromise (mixed) choice: using several possibilities partly at once · murosali tanlov
Explanation
Because resources are limited, people, firms and the state always make choices: choosing one possibility means giving up others. The possibilities given up are called alternatives. The most valuable of them is the opportunity cost of the choice. So opportunity cost is not the money spent but “the best opportunity lost”. Sometimes one possibility is not chosen outright; instead money or resources are divided among several possibilities – this is called a compromise choice. Knowing the opportunity cost helps in making a conscious decision: before deciding, it is useful to ask, “what am I giving up in return?”
Worked examples
On Saturday afternoon Madina has 3 free hours. Her options: football training, helping her grandfather in the garden, or a computer course. She can choose only one. She chose the course; if football was her second choice, the opportunity cost of the course is the football training.
A school library was given 3 000 000 so‘m. A reference book costs 60 000 so‘m and a novel 40 000 so‘m: spending everything on reference books gives 50 books, everything on novels gives 75. The librarian bought 30 reference books for 1 800 000 so‘m and 30 novels with the remaining 1 200 000 so‘m – using both possibilities partly, which is a compromise choice.
Class activity
“Which one do you choose?”: the teacher offers three attractive options (for example, how to spend one week of the holidays). Pupils choose, raise their hands, and say the opportunity cost of their choice (the best option given up).
Practice
1
How many 4 000 so‘m notebooks can be bought at most with 120 000 so‘m?
30
2
A carpenter can make either 10 tables or 40 chairs in a week. What is the opportunity cost of one table in chairs?
4
3
The library spent 1 800 000 of its 3 000 000 so‘m on reference books. How many 40 000 so‘m novels can it buy with the rest?
30
4
Why is “opportunity cost” not the same as the amount of money spent? Explain with an example.
Because it means the best possibility given up. For example, for someone who buys a book for 50 000 so‘m, the opportunity cost is the most useful thing that money could have bought (say a cinema ticket), not the sum itself.