OPPORTUNITY COST

OPPORTUNITY COST

The most fundamental concept in economics is opportunity cost. If
you choose to use resources in one employment, then you must
sacrifice the opportunity to use them in some other way. It is an old
adage: you can’t have your cake and eat it.
This sacrifice is frequently described as a TRADE-OFF. For
example, if we use native forests to construct homes, build ships and
fuel the fires of industry then society must trade this off against
retaining the natural habitat for wild animals to roam free.
North West Europe used to be carpeted from end to end in
temperate rainforest. Very little remains today. There is no native,
unspoilt natural vegetation left in Western Europe that has
remained unexploited by man. Gone too are the bears, wild boar
and a host of other species that used to run wild in the forests.
But the trees felled in the past built the ships that first circumnavigated
the globe, founded the trade and provided the energy that
produced the modern industrial age. A much greater human
population has now largely replaced the animal population that
preceded it.
It is in the nature of economics that sacrifices must be made. The
issue therefore becomes one of being as efficient and equitable as
possible. Keep the opportunity cost of economic development to a
minimum so we do not have to trade-off too much of one to gain
more of the other.
The European lion may be extinct though we might yet find ways
to protect the Asian tiger. But there are no guarantees. It takes time
for society to learn to practise SUSTAINABLE DEVELOPMENT and, in the
interim, more species may still die out. The long term aim must not
be to preserve all existing species, however, since this would
inevitably preclude any further improvement of our own welfare.
The opportunity cost in this case would be prohibitive. The appropriate
aim is thus to minimise environmental costs such that the
CAPITAL STOCK of our planet is not depleted. The garden I bequeath
my children may therefore contain a different mix of flora and
fauna to that which I inherited but it should nonetheless retain all
its phenomenal fertility and productivity. Future generations are
thus not denied the opportunity to use the Earth in whatever ways
their ingenuity allows.