Utility and Opportunity Cost

 

Resources are limited.

 

In choosing one option, a person or organisation gives up other options.

 

In satisfying one want, the alternative wants remain unsatisfied.

 

The choice made will maximise the utility of the user.

 

For example, a local government may wish to refurbish three schools, build a new leisure centre and to improve recycling facilities. It only has the resources to fulfil one of these projects. It will rank the projects in terms of the utility obtained by the local population e.g. leisure centre, then refurbishment of schools and lastly recycling facilities. The local government will invest resources into the leisure centre but not the schools.

 

Thus in choosing to build the leisure centre it has given up the opportunity of refurbishing new schools

 

This is known as the opportunity cost

 

Opportunity cost is the next best alternative foregone

 

 

 

 

For information on local government expenditure in your own area, look at the relevant council web site.

 

Click to access this information for Edinburgh and the Lothians