Question

6) How does opportunity cost specifically apply to the following situations:

a. A piece of land that is to be devoted to a national park.

b. An abandoned railroad that is given to a community for constructing a bike path

c. The costs of diverting water from a river to irrigate nearby farmland

d. The costs of clear-cutting timberland.

e. A piece of land that is to be converted from farmland to a Scheel’s sporting goods super store.

Answer 1

6. Opportunity cost is defined as potential loss by choosing one alternative over another alternative.

(a). Here in this deal, by devoting the land to national park for the benefit of nature and society, opportunity to use land for growing crops or other purpose is lost, which is the opportunity cost for building the national park.

(b). In this example, by using the abandoned railroad for constructing a bike path, opportunity cost of rail transport, which is one of the good means of transport, is lost to get the benefit of bike path.

(c). Here, opportunity cost of biological balance, industrial processing, thermo-electric power generation is used for the benefit of irrigation.

(d). In this example, by clear cutting timber, opportunity of cost of maintaining bio-diversity conservation is lost for the benefit of producing products, that uses timber as raw material.

(e). In this example, opportunity cost of using farmland for crop production is used for the commercial benefits by opening sporting goods super store.