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Hello, today we will be covering the topic of Opportunity Cost and what it means related to economics.

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This image represents opportunity cost because its weighted between two different choice and two different outcomes. One outcome might weigh more than the other with positives but the side might interest you more.

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This article explains the economic discount  rate  used to calculate the net present value of an investment into a project, a program, or a government intervention is worth while to under take. In Canada there is debate on the economic discount, which can range 7.78% to 8.39%. The debate is whether the empirical measurement of the opportunity cost funds.  The article states that 8% is the appropriate discount rate for Canada. This is very informative as it explains how the government has to deal with opportunity cost of their actions.

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Author

Abstract

The social or economic discount rate is the threshold rate used to calculate the net present value of an investment project, a program, or a regulatory intervention to see whether the proposed expenditures are economically worthwhile to undertake. The size of the economic rate of discount has been a policy issue in Canada for many years. The debate has been primarily concerned with the empirical measurement of the economic opportunity cost of funds. The purpose of this paper is to reexamine and update the empirical estimation of what is the appropriate economic discount rate for Canada. The results suggest that estimates of the economic discount rate can range from 7.78 percent to 8.39 percent real. As a consequence, we conclude that for Canada an 8 percent real rate is an appropriate discount rate to use when calculating the economic net present value of the flows of economic benefits and costs over time.

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Handle: RePEc:qed:dpaper:1

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discount rates; opportunity cost; project evaluation

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The Economic Opportunity Cost of Capital for Canada - An Empirical Update

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Downloadable! The social or economic discount rate is the threshold rate used to calculate the net present value of an investment project, a program, or a regulatory intervention to see whether the proposed expenditures are economically worthwhile to undertake. The size of the economic rate of discount has been a policy issue in Canada for many years.

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This page explains the opportunity cost that students are faced with when dropping non-mandatory STEM courses. The page explains how with the ever changing world that STEM courses will increasingly become more valuable over time. Overall I believe this is a relevant topic explaining how Opportunity Cost is something people have to take into account when making any decision minor or life changing. The decisions made by the students will not only impact their future careers but also could impact the economy as people will have less qualifications when STEM classes become crucial in the future economy.

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While formal education cannot fully prepare anyone for all of life's challenges, a system that develops critical thinking, literacy, numeracy, communication, and technical skills supports lifelong learning and prepares students for evolving employment needs.

For Canadian students who have completed secondary school with senior-level mathematics, science and technology courses, this can translate in a wide range of career opportunities. But for younger students who are dropping non-mandatory STEM courses, the future may not be nearly as bright.

Students, parents, teachers and guidance counselors need to understand that opting out of senior-level math, science, and technology courses in secondary school can limit their future academic pursuits and career paths-that's why early awareness is key.

Most students know about "traditional STEM careers," such as physicians, nurses, IT specialists, science teachers and statisticians. But they may not know that many other college, university and skilled-trades programs and careers also require STEM-based learning, literacy and skills.

In tomorrow's world, STEM-related skills will be highly valuable-what will you do to ensure that students continue to engage with these important subjects?

Source: Spotlight on Science Learning: The High Cost of Dropping Science and Math

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Being prepared for tomorrow, and the evolving needs of employers-that's what STEM learning helps Canadian students with every day. The skills that come along with STEM education help lead teens down a path towards a wider range of employment opportunities. But what about those who opt out of science and math learning?

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This image represents the chances you take when thinking about opportunity cost. You often have to think of the road that may not be traveled. You may have to take a huge leap on the opportunity and it may have more risk than the other road but it may interest you more.

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This is an extreme example of Opportunity Cost. A lot of people in BC have suffered thru a lot as many people who struggle financially and have to decide between what is most important. An example given says that some people have to decide between winter boots or a winter coat, some other people have to decide between hydro or food. This has sparked debate on whether the government is really thinking about the Opportunity Cost. There are a lot of funding issues where schools have been neglected but somehow the government found money to fund $514 million for the BC Place Stadium. This example shows some of the problems when the government does not evaluate the Opportunity cost and how the government must evaluate how they are spending their money.

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When Premier Clark decided that pets living in B.C. were vulnerable and needed protection, did anyone in her cabinet mention her "families first" promise during her last election campaign?

I have a friend who is so poor that sometimes he will buy one can of tuna so that both he and his cat can eat. He's not the only B.C. citizen trying to make the most of extremely limited resources. He certainly considers himself luckier than those who sometimes can only afford to eat pet food.

Choices that many families in this province have to make daily are heart wrenching. Food or hydro. Rent or MSP premium. Winter boots or a winter coat. Families living in poverty don't have the option of choosing both.

But those whom we elect to be in charge of our public funds have far more options which is why it's quite mind-boggling to see some of the choices they make.

It's hard to makes sense of the $100 million deposit into the " prosperity fund" at the same time that the education budget is being eviscerated: $5.1 billion only sounds like a lot of money until you realize that $4.1 billion has been cut from the budget since the B.C. Liberals came into office in 2001.

Why is there $514 million for BC Place stadium's roof, and yet there are schools with leaky roofs, mould, rat infestations and water in which fish eggs die?

Why is there $100 million to help pulp mills to upgrade buildings for energy conservation, and yet no money for seismic upgrades in schools?

Whenever families create household budgets we have to make choices based on our family priorities. Spending on a trip to Disneyland is less important than saving for college. Spending money on groceries is prioritized over spending money on eating out. Families well understand the basic premise of budgeting: choosing to spend your money on one thing means that you lose the opportunity to spend it somewhere else.

The latest B.C. government ads tell us that with the B.C. Liberals, we will have lots of opportunities, but at what cost? The 2016 budget made sure that the government would have the opportunity to create many glowing ads now that the budget for such communications has been increased by 43 per cent to $37.9 million. What opportunities would school districts have to change the lives of children in this province with that kind of money?

It's difficult to get them to see that a balanced budget is a myth after three decades of so many pundits and politicians telling them otherwise.

But government budgets are nothing like family budgets. Families can't "print money" as governments can. (The financial term for it is quantitative easing.) Families cannot change laws to benefit themselves and their budgets. Families also have no control over the value of a dollar.

In fact a family's budget has little in common with a government's budget and yet a whole succession of governments have successfully persuaded the public that in order for a government to balance its budget, it is necessary that some people suffer.

People, who I know to be kind and caring, will say that it's unfortunate that schools need more funding but it's more important that the budget be balanced. They think that balancing the budget is a higher priority than providing people on disability with bus passes. And, even though they agree that it's sad that one in five children is living in poverty, they believe that nothing can be done because the budget needs to be balanced.

It's difficult to get them to see that a balanced budget is a myth after three decades of so many pundits and politicians telling them otherwise. It's understandable that most people who watch the nightly news would have no idea that having so many people living in poverty costs more money than it would cost to ensure people were not stuck in a poverty cycle.

The latest B.C. Liberal government ads are right about one thing. B.C. does have an opportunity to create a more prosperous future. All it will cost is the election of a new government. One that will not only protect pets but children living in poverty too.

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The Devastating Opportunity Costs Of B.C.'s 'Balanced Budget'

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I have a friend who is so poor that sometimes he will buy one can of tuna so that both he and his cat can eat. He's not the only B.C. citizen trying to make the most of extremely limited resources. He certainly considers himself luckier than those who sometimes can only afford to eat pet food.

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On this website people can learn about what Opportunity cost is and it gives examples on the topic. I believe it is important for people to know, as some people might believe that opportunity cost goes one way, to save money, but it also mean people spend more money. The article states that people's free time could out way trying to find a better deal. For example if a person values their free time more than money, he would be willing to pay more to save time. He would be inclined pay more for a direct flight instead of saving money by having hours worth of layovers. Overall the article is very informative and a lot of people don't understand that you're free time should be in considerations when weighing the opportunity cost.

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Spend less than you earn. There's a reason those five words (or a variation thereof) are at the top of nearly every personal finance must-do list. Because spending less than you make is the very thing that enables you to accomplish the rest of your personal finance goals. Think about it: Not too many people are able to save for their future when there's more money coming out of their wallets than there is going in. If a young couple is spending like drunken sailors, it can be pretty tough to save a down payment for a home. (No offence to any naval personnel enjoying a cold beverage while they read this.)

Yet what seems so blatantly obvious is far too often overlooked on a daily basis. Here's an example: If Carrie spends $1,200 on a pair of Jimmy Choo shoes when she could have spent $120 on non-Choo shoes, she's saying goodbye to $1,080 just so she can be seen wearing Choo's shoes. That seems loopy, at least for most of us. Especially when you consider what the $1,080 could have been used for instead. You suddenly realize that Carrie's choice wasn't just between Choo or non-Choo shoes. It was also a choice between Choo shoes or non-Choo shoes plus lunch with a friend, a few groceries, a bottle of wine, a mortgage pre-payment, her daughter's swim class registration, a tank of gas in her car, an RRSP contribution and tucking $150 in her TFSA towards a dream trip to Italy. Because that's an example of what Carrie could have done with the money instead (assuming she can't afford the shoes plus everything else on that list).

It's what economists refer to as opportunity cost. Actually, an economist would define opportunity cost as "the value of the best alternative foregone, in a situation where a choice needs to be made between a variety of alternatives given finite resources." Whatever. All it really means is maximizing your hard-earned money. It's recognizing that few money decisions are made in a vacuum and then asking yourself, "What could I do with this money instead?"

Opportunity cost is everywhere. The money you save by dining out once a week instead of thrice could be the money that puts food on your family's table for the entire week. Commuting to work in a Chrétien-era Corolla will never be as prestigious as doing it in a brand new Big Money Waste, but look at it another way and the cash you save by driving the world's most popular car instead of an autobahn cruiser could be the money that puts a luxurious new hot tub in your backyard. The decision to spruce up your tired kitchen with a fresh coat of paint rather than forking out a ton of dough for a complete renovation? That could potentially yield enough savings to pay for a whole new Toyota.

Savvy shoppers also understand that certain types of spending lead to, well, more spending. The aforementioned kitchen reno is a classic example. Consider that when Buddy's old fridge breaks down, he might call around and discover it will cost $500 to have it repaired. Rather than spending half a thousand dollars on an old fridge, Buddy might decide to splash out on a new one for $1,500 instead. Sure it costs more, but the new fridge is larger, has some nicer features and comes with a warranty. Fair enough. Except that now Buddy's stove is going to look shabby sitting across the kitchen from his shiny new fridge. Buddy finds he can get a deal if he buys a new stove along with his shiny fridge, and he can get a super deal if he picks up the matching microwave-hood at the same time. All of a sudden, Buddy's $500 broken fridge has morphed into a $5,000 appliance upgrade or worse, a $50,000 kitchen renovation. (Trust me, it happens.)

Now, I'm not suggesting that Buddy shouldn't buy the new fridge or even the rest of the appliances, but I am suggesting that he should stop and ask himself: "What would I do with $4,500 if I didn't buy all new appliances?" Chances are if he was fine with the old fridge, he'll be just as fine with it once it's repaired. And yes, another option would be to replace the fridge now but resist the temptation to upgrade the other things. Some people are capable of that.

Opportunity cost goes the other way, too. Sometimes a rational exploration of the options presents a case for spending more. According to Dan Ariely, behavioural economist and author of The Honest Truth About Dishonesty, you should also consider the opportunity cost of your time when making spending decisions. In a recent column for the Wall Street Journal he questions the value of the time you save by parking in a pricier lot right away versus looping around the block for a cheaper deal. If your consider your free time to be worth, say, $30 an hour, it doesn't make much sense to spend 30 minutes driving around to save a few dollars, to say nothing of the frustration felt if the search is ultimately unsuccessful and you end up paying full price.

Smart shoppers should consider their options and understand what's at stake. Get it right and it becomes so much easier to stay true to the all-powerful personal finance mantra "spend less than you earn."

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Spend less than you earn. There's a reason those five words (or a variation thereof) are at the top of nearly every personal finance must-do list. Because spending less than you make is the very thing that enables you to accomplish the rest of your personal finance goals.

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This video explains what opportunity cost means and uses real life examples to better explain it. It shows an example of trade and how much each person is giving up and what they are receiving and it shows who's opportunity cost is higher and why. This is a good video to help better understand the definition of opportunity cost for people who do not know.
I chose this video to use to explain opportunity cost because it uses a good economic example. I chose this video over other videos because it is short and to the point, but still gives clear information for people who are learning to understand.

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This video explains what opportunity cost means to economists. It tells us about examples how it is often the "the road not traveled" meaning the "risk you might take on a certain opportunity in which others maybe would not have done. I chose this video to help people further understand opportunity cost in a realistic way of thinking. The guy in this video makes it enjoyable to watch because he isn't boring you with facts on facts its short and sweet and to the point with legitimate examples that relates to real life.

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This video explains real life examples of opportunity cost and explains that every time you make a decision. "Every choice you make has a value to you" this video shows you the value in the decisions you make as well as the cost you might have to pay for the opportunity. The video gives you useful information in regards to your greatest benefit but your lowest cost. I chose this video because I felt I could compare to it on a personal level because it gives an example about just finishing college and entering the work force and you have a lot of options to think about, I think this video was very informative in a sense it was relate able to this class as some people are moving on into the work field.

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Opportunity Cost Definition and Real World Examples

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1. What we learned about our topic that surprised us the most was how much opportunity cost can actually relate to us in the real world. When making any decision opportunity cost can always be used. Another thing that we learned from this was how important it is to think when making a decision because every choice you make has a value to you.

2. A real life example of how this topic could be useful is for studying. When deciding whether you want to study for your test tomorrow or go out with your friends you can determine the opportunity cost of each. If you decide to stay in and study for your test the opportunity cost is going out with your friends because that is what you are giving up to study.

3. The most important thing to pass on to a family member or a friend is to think of real life examples of opportunity cost and how every choice you make has a value to you. It is a useful tip to make decisions in the real world.

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This video is about a 5 minute video that goes over how to calculate opportunity cost with a real demonstration. The example used in this video is of two people producing radios or producing tv's. It shows that the opportunity cost of producing 4 radios is 6 tv's. This means that if he were to put all of his resources into making radios he would make 4 but he wouldn't be making any tv's. The video then goes over how to get the opportunity cost of only producing 1 radio. She translates the table into a ratio by dividing each number by one to show the opportunity cost for producing 1 radio. I chose this video because unlike the other videos it gives a good idea of how to actually calculate the opportunity cost of specific situations.