What is meant by opportunity cost (May’11)? Compare the definitions of Economics offered by Adam Smith and Lionel Robbins.

Q. What is meant by opportunity cost (May’11)?

Opportunity cost: Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative that is not chosen. It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices.

The opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".

Example: The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).

Q. Compare the definitions of Economics offered by Adam Smith and Lionel Robbins.

Or. Define Economics.

Economics: Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek “oikonomia”, where ‘oikos’ means  "house" and ` nomos’ means “custom" or "law". In this sense “oikonomia” means "management of a household, or "rules of the house".

There are a variety of modern definitions of economics. Some of the differences may reflect evolving views of the subject or different views among economists.

Alfred Marshall provides a still widely-cited definition in his textbook Principles of Economics (1890) that extends analysis beyond wealth and from the societal to the macroeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.

Lionel Robbins (1932) developed implications of what has been termed "perhaps the most commonly accepted current definition of the subject". Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

Lastly we can say that, the theories, principles, and models that deal with how the market process works. It attempts to explain how wealth is created and distributed in communities, how people allocate resources that are scarce and have many alternative uses, and other such matters that arise in dealing with human wants and their satisfaction.