What is the opportunity cost of saving money to purchase a car?

The opportunity cost of saving money to purchase a car depends on what you need and desire. For instance, the opportunity of spending money on holiday instead of buying a car is also an opportunity cost.

EXPLANATION:

Opportunity cost is also called alternative cost. It is the value of the most valuable selection out of those that were not acquired. When a choice is made from alternatives, the opportunity cost is the "cost" experienced by not owning the benefit related to the best alternative option.  

The idea of opportunity cost plays an important part in efforts to ensure that rare resources are spent efficiently. Opportunity costs are not limited to financial costs or monetary: lost time, the real cost of output forgone, pleasure or any other profit that provides usefulness has to be taken into account an opportunity cost. Opportunity cost of a service or product denotes the income that could be received by its alternative use. It can be said that opportunity cost is the cost of the next best substitute for a product or service. The meaning of the idea of opportunity cost can be described with the help of following examples:

1.The opportunity cost of the treasuries tied up in one's partnership is the interest (or benefits corrected for alterations in risk) which could be gained on those funds in other attempts.

2.The opportunity cost of the time one sets into his own business is the wage he can earn in other works (with an alteration for the relative psychic revenue in the two occupations).

3.The opportunity cost of using machinery to produce one product is the remunerations that would be conceivable from other products.

4.The opportunity cost of using a machinery that is unusable for any other reason is nil, since its use needs no expense of other opportunities.

Therefore, opportunity costs need sacrifices. If there is no expense engaged in a decision, it will be no opportunity cost. In this case, opportunity costs that do not involve cash flow are not documented in the books of accounts. However, they are a crucial consideration in business decisions.

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•What is the opportunity cost of saving money to purchase a car?

Keywords: opportunity cost, alternative cost

Subject  : History

Class  : 10-12

Sub-Chapter: Economics

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