Opportunity cost is a very important concept in economics and UPSC. Let me explain it in the easiest way using a simple definition, example, and Production Possibility Curve (PPC).
🔍 What is Opportunity Cost?
Opportunity Cost = The cost of the next best alternative that you give up when you make a choice.
🎯 Easy Example:
Imagine:
You have ₹100 and two choices:
-
🍔 Buy 2 burgers (₹50 each)
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📚 Buy 1 book (₹100)
If you choose the book, you give up the chance to eat 2 burgers.
👉 Opportunity cost = 2 burgers
If you choose the burgers, you give up the chance to buy the book.
👉 Opportunity cost = 1 book
📈 Understanding with a Curve – Production Possibility Curve (PPC)
PPC shows different combinations of two goods that an economy can produce with limited resources.
Let’s say: An economy produces only two things: Guns and Butter
| Combination | Guns | Butter |
|---|---|---|
| A | 0 | 10 |
| B | 1 | 9 |
| C | 2 | 7 |
| D | 3 | 4 |
| E | 4 | 0 |
Each time you produce more guns, you produce less butter.
👉 The butter you give up is the opportunity cost of producing more guns.
📊 Curve Shape and Opportunity Cost:
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The PPC is concave to the origin due to increasing opportunity cost.
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Why? Because resources are not equally efficient in producing both goods.
🔁 Summary:
| Concept | Simple Explanation |
|---|---|
| What is it? | What you give up to get something |
| Real-life example | Choosing between burger and a book |
| In PPC | More of one good = less of another |
| Curve shape | Concave due to increasing opportunity cost |
Would you like a diagram of the PPC curve with labels for better understanding?
