What is Opportunity Cost?

In real estate investment, what is the opportunity cost? It is basically the cost or value of taking an action. For example, if I invest my money in a new apartment building, I may be required to spend thousands of dollars for various permits and licenses.

If I were to choose to rent the apartment, I would also need to spend thousands of dollars on the monthly rents. But what if I were able to choose a different option, say, to buy the same building, instead of spending the money to purchase it?

Opportunity Cost
Opportunity Cost

Microeconomics refers to the hidden costs involved in taking an action. In microeconomic theory, the opportunity cost represents the loss of the expected benefit, which could have been gained if the optimal alternative was chosen. In foregone conclusion, foregone opportunities must also be taken into consideration when you choose one option over another. Directly or indirectly, opportunity costs also underpins most of the day-to-day financial decisions made in modern society.

Consider for example that you are in the early stages of starting up a small boutique. You know that starting a business is a very difficult task and that without any experience at all, it can even seem impossible to start your own business from scratch. In this situation, you know that you need to make use of any resources that are available to you. Your new business idea has the potential to help you bring in some revenues, but you also know that without any experience in marketing or sales, it is highly unlikely that you can make the necessary purchases to get things moving.

One way you can address this issue is to use a drop shipping service like eBay to create your online store. There are many eBay sellers that have successfully used this method successfully to build up a small retail business, so it does have the advantage of being something that anyone can do if they take the time to learn how it works. What is important however is that you do not choose one option but to explore all of the options available to you in order to find the one that will work best for you.

The best way to do this is to consider how different options can impact upon your finances. For example, did you consider the effect of choosing to sell your products through dropshipping on eBay? If you were to calculate the cost of each individual choice, you could see that this would take you years to recoup your investment. Consequently, you may want to think carefully about what trade-offs you are making when choosing one option over another.

Now consider how your decision about whether to start a part-time online business or a full-time online business will impact upon your finances. Most people who have tried dropshipping on eBay have found that they are able to generate more income and have more fun doing things on the internet than they ever did in the early days of their online business ventures. This is because you have more choices now and so the economy of supply and demand have forced prices down significantly while labor rates have continued to rise. If you can figure out what your opportunity cost is and adjust it for your current situation, you can have some real success. On the other hand, if you did not do this kind of analysis or try to recoup some of your investment with more traditional foregone conclusions, then you may be sacrificing the potential to create a larger income.

It is possible to answer the question of what is the opportunity cost through economic reasoning. The best example of this comes from the natural sciences. Consider the amount of energy that is required to burn a given amount of fuel to run a car. Obviously, this energy output is not constant since you may be using up more fuel in one day than the next. However, if you were to let go of the car’s conventional engine and replace it with an electric motor, you would be eliminating this demand for energy and as a result, you would be eliminating the need for monetary investments in gas, oil, and other resources. Opportunity cost therefore would become irrelevant and all your initial investments would become a waste of money.

Therefore, the real key in the matter of economics is to allow enough time for opportunity costs to creep up before you decide to make a major investment. While you can spend money in any way that you want, foregone conclusions always have a cost in the form of lower personal financial returns. In the case of eBay auctions, the foregone conclusion is the investment in time. Calculate your opportunity costs and choose wisely.

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