in this case we say that two kilometres of bicycle path is the opportunity
cost of one kilometre of road repair.
Every time a choice is made, opportunity costs are incurred.Opportunity Cost Is a Ratio
As simple as it may seem, the idea of opportunity cost is one of the
central insights of economics. Here is a precise definition: The
opportunity cost of choosing any one alternative is the value of the
next best alternative that is given up. That is, it is the cost measured in
terms of other goods and services that could have been obtained instead.
This concept of cost involves a simple ratio, as we can see in our example
in Figure 1-1. Suppose Susan had initially determined that the best use
of her full budget was to choose point b—12 kilometres of new bicycle
path and 6 kilometres of road repair. After new information regarding the
dire state of some roads is considered, however, the decision is made to
choose point c—with more road repair and fewer kilometres of bicycle
path. The movement from point b to point c involves a cost: six
kilometres of bicycle path must be given up in order to get three extra
kilometres of road repair. Each extra kilometre of road repair “costs” two
kilometres of new bicycle path
Notice that the opportunity costs of the two activities are inverses of one
another. From Figure 1-1 we see that the opportunity cost of one extra
kilometre of road repair is two kilometres of new bicycle path. It is also
true that the opportunity cost of one extra kilometre of bicycle path is 0.5
( 6 ÷ 3 = 2 ).