Question

Define the concept of Opportunity Cost and state the Low Hanging Fruit Principle (or Principle of Increasing Opportunity Cost). Explain these two concepts using a real-wold example.

Marking criteria:

- Clarity of exposition

- Definition of Opportunity cost

- Definition of low hanging fruit principle

- Real world example

Answer 1

Opportunity Cost

Opportunity cost is the cost of next best alternative foregone. For example, if I choose cold drink over water, then the Opporunity cost is what I have lost from not picking the water.

So, opportunity cost is what a person sacrifices when they choose one option over another.

Low Hanging Fruit Principle

It states that while doing the production of any commodity, the firm employs the resources which has least opportunity cost and wait for such resources to be exhausted in the production process to employ any other resource that has higher opportunity cost.

For Example, To produce gas, a nation first employ already available resources since such factors are easily available and have low opportunity cost. After the domestic resources get over, the firm resorts to the imports of additional resources which carries higher opportunity cost. So, domestic resources are similar to low hanging fruits on a tree that a person can easily pick but it is hard to pick the fruits which are at the top of the tree (Imports)