Nature of Competition: A Theory of the Opportunity Cost
We cannot have the cake and eat it too. In
order to get a nice thing, we have to sacrifice another good thing. That’s easy, but for “another” being an
uneconomic term. Economics is not only ordinal but also cardinal.* Consequently, we in economics usually say the opportunity
cost in the meaning of the other good
thing.
*Note:
Some economists speculate that cardinality may not be needed in economic
reasoning (e.g. Paul Samuelson and William Nordhaus, Economics, 2010, p. 89). Alas, they fall into the trap of “fallacy
of composition” (ibid, p.9).
To
begin, we discuss “disutility,” as opposed to “an opportunity cost.”
Disutility.
Every rose has its thorns. This world is not everywhere wonderful, full with utilities.
There are many matters of disutility
in themselves, or equivalently painful in its own right for us to live together
with. Most prominently, there in the neighborhood are barking puppies, many other
noises, opium poppies, other villains and all the likes, or maleficial “externalities”
as sometimes called in economics
At
any rate, there is no substantive (in kind) or substantial (in degree) differences
between losing a benefit (-) and having a disutility (-). We hate ’em both. As
such, a disutility, or a “bad” as
sometimes referred to, is just a nickname of a cost. On the flipside, removing (-)
a “headache” (-) equals a benefit (+).
Like
it or not, we have to live with all sorts of benefits on one side and all kinds
of costs on the other side. C’est la vie!
The opportunity cost. We
in economics call as the opportunity cost the highest utility we have to forgo
in return for choosing the best of
all utilities as of the moment of
choice. In other word, we the rational are presupposed to choose the single
best at the cost of the second best.
More simply, the opportunity is never
arbitrary but it is definitive.
Suppose
any of us love in the regular order of the Roman alphabet from A to Z; that is,
A the best to Z the worst. The opportunity cost of choosing the A is the B only,
never any letter else, possibly hypothesized “for the sake of convince” or “for
simplicity.” If she whimsically chooses the D as in Daniel of her best friend,
the opportunity cost is the A in real, never the E of convenience or else.
A misnamed opportunity.
Many a macroeconomist erroneously names the fed fund rate as the opportunity
cost of liquidity preference. He is strongly recommended to take elementary
economics course. To be true, the opportunity cost of hoarding money is what
you need the most desperate as at the moment of making the call.
The
rest of us would never and nowhere name the fed rate as the opportunity cost.
There are so many better opportunities jumping around here and there. For
instance, some might purchase a dish of sushi for consumption while others purchase
a few stocks of Nvidia for investment.
You’re
right, no science when exogenous to Eternity is for the sake of convenience in the reasoning process. Thou shalt
not buy economics with mathematics, for instance, however convenient it may be.
The cost at the time of naming.
Like father like son. The opportunity cost is just as much whimsical as a utility.
Notwithstanding, there at the moment of choice of a particular benefit is only
one opportunity cost according to the cardinal
order (in the dollar) of all affordable benefits.
For
instance, there is no reason whatsoever the famous Irish potatos (to Dan Quayle) of Giffen good (to so many Macroeconomists*)
are compared to Scottish meat. There
are Welsh venison, English muffin, and so many likes. Boys, be ambitious, and
break the egg of ordinal “choice of
consumer.”
*Note:
The consumer choice model is a unquestionable macrocosm as opposed to the
market, a definitive microcosm.
In fine, a benefit and the opportunity cost
keep company with each other: Either is never and nowhere alone. And, always
and everywhere it’s only you, my single dearest darling.
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