ECONOMIC GOOD

An Economic Good is described as anything that yields utility and commands a price.  An Economic Good must possess the following qualities:

The object must be very scarce.  Air that we breathe in is not scarce.  Hence, it is not regarded as an economic good.

The object must be very valuable for it to be an economic good.

The object must have the power of satisfaction.

The object must command a price.  Air that we breathe in, for instance, does not have price attached to it.

OPPORTUNITY COST

Opportunity Cost was first propounded by John Stuart Mill.  In the ordinary sense, Opportunity Cost is the forgone alternative.  But in economics, Opportunity Cost is the real cost of the forgone alternative.  The scale of preference made earlier is referenced.  Buying the Shirt means the individual has to forgo the other five items in the list.  It, therefore, seems that the forgone alternatives are these remaining five items.  This is not exactly correct!  The Book which ranks next to the Shirt is actually the forgone alternative.  If he had enough money, the next item he would buy is the Book because it ranked next to the Shirt.
In the aforementioned example, the individual would forgo the purchase of the Book because of insufficient money.  The money is the scarce resources which could have been put to several other uses besides buying any of the listed items.  This leads to choice and something has to be forgone.  The extra money which the individual does not have is the cost of forgoing the Book.  Hence, the cost of the forgone alternative is the opportunity cost.
Specifically, the individual represented above requires a Shirt and a Book that costs N500.00 each.  He has just N500.00.  If he decided to buy the Shirt, the Book is the forgone alternative.  The reason for forgoing the purchase of the Book is his insufficient fund.  The cost of purchasing the Shirt is the Book that is forgone measured in monetary terms.  The value of the Book is N500.00.  The N500.00 is the opportunity cost of foregoing it.  Simply put, opportunity cost arises because of the several purposes to which the scarce resources (in this case the N500.00) can be put to.
Again, let the argument be extended further.  If the Shirt costs N500.00 and the Book costs N500.00.  The individual who needs a total sum of N1,000.00 but has N800.00 will still have to make a choice between the two commodities.  Since the Shirt ranks first in his order of priorities, it has to be bought first.  He will still forgo the Book in the mean time.  The Book is still the forgone alternative.  But N500.00 cannot be said to be the opportunity cost because, in this instance, he needs just N200.00 more to have the Book.  The reason for forgoing the Book is not N500.00 as in the previous example.  The cost of forgoing the book now is N200.00 even though the value of the Book is N500.00.  The N200.00 is the opportunity cost to this individual at this point.  That is the cost - the real cost - of forgoing the Book.
Besides, the cost of the Book could have been N300.00.  This means that to the individual who required N800.00 to buy the two items but has N600.00 would still have to make a choice.  If the Shirt is bought, the cost of foregoing the Book is not N300.00 but N200.00. 
On the alternative, a piece of land could generate 20 tubers of Yam or 20 tubers of Cassava.  If the land is used for Yam, we would forego the consumption of Cassava.  The cost of foregoing the consumption of Cassava is the cost of the 20 tubers which the land cannot be subjected to produce.    

SCALE OF PREFERENCE

A scale of preference is any arrangements of the wants of individuals, firms or governments according to their importance.  The scale of preference is just an imaginary list that exists in the minds of individuals, firms or governments.  An imaginary list can be in this form:
1.      Shirt
2.      Book
3.      A pair of Shoes
4.      A pair of Trousers
5.      A Travel Bag

From the above imaginary list, Shirt is the most important.  That is why it ranks first.  Hence, it must be purchased first before any other items in that list.

Q. 1

What really is Opportunity Cost in Economics?  Comments and suggestions allowed.

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