Question

In: Economics

State whether or not the following would be an opportunity cost of owning and working in...

State whether or not the following would be an opportunity cost of owning and working in your own business

a. Income earned from working at another occupation

b. income earned from your mutual fund (you still have it)

c. payments for meals

d. payments for property taxes on your person residence (your home)

Solutions

Expert Solution

For opportunity costs, we need to check if the current activity involves giving up some other economic activity that had potential returns or for which there is an implicit cost incurred but no direct payment made.

a. Income earned from working at another occupation

This involves another activity that was given up and that had been giving an income. Now you do not have access to that income so it is an opportunity cost.  

b. income earned from your mutual fund (you still have it)

This does not reflect any sacrifice made because you have the mutual funds in the present time so you are still receiving income while doing the business. Hence there is no opportunity cost involved

c. payments for meals

This is a direct and explicit payment made and a meal is purchased in turn so there is no opportunity cost. Even when you are still working in your previous occupation, payment for meals would still have to be borne.

d. payments for property taxes on your person residence (your home)

Income tax on your income and property tax on your property possessed/used by you is a compulsory payment and is paid in return for the utility services provided. If you are not working or having no property, you do not have to pay these taxes. Hence property taxes are the opportunity cost of holding property.

Rahul Sunny answered 2 years ago
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