Zero Opportunity Cost - Is it possible?

Categories: Economics

Word count: 900

Written by Samdisha on 11 Dec 2021

Table of Content

What is opportunity cost?
Zero Opportunity Cost? 🤔
Free goods VS Economic goods
What’s free for you might not be free for someone else
Final Words

The short answer to the question is YES! We can have certain cases of ZERO OPPORTUNITY COST in Economics. But in order to understand this, we need to have a clear picture of some concepts.

What is opportunity cost?

“Opportunity cost in economics is the value of an item in its next best alternative use.”

“Opportunity cost is the next best alternative that is foregone.”

I know this might sound difficult to understand, but it is a very simple concept :)

Let us continue the story of Venessa from the last article. If you don’t remember her, have a read here:

What-How-Why of Economics

This article explains the basics of economics: what is economics, its history, how should we approach it and its importance.

You can grasp this concept better if you have a prior knowledge of the basics of economics, which is the topic of discussion of that article.

Now, coming back to Venessa, if she choses to spend those 1000 bucks on purchasing Netflix subscription, she won’t be able to purchase the books as she only has Rs. 1000 (resources are scarce).

In other words, she has to forgo the books in order to get the subscription.

Now, the cost of the books which she has foregone is the opportunity cost of the subscription as for her, the next best alternative is the books.

Opportunity cost of the subscription for Venessa = cost of the books.

Similary, consider the case where you have to choose between 3 jobs, paying you Rs. 15000, Rs. 7000 and Rs. 20000 respectively.

As a rational person, you would choose the job paying you Rs. 20000 per month.

Here, if you didn’t have the option of Rs. 20000, you would have gone for the Rs. 15000 one.

So, the opportunity cost for choosing a job paying Rs. 20000 per month is Rs. 15000 as Rs. 15000 is the amount you would have earned if you didn’t have a job worth of Rs. 20000.

Now, that we have understood what opportunity cost is in Economics, let us see how we can have a case of Zero Opportunity Cost in Economics.

Zero Opportunity Cost? 🤔

Yes, opportunity cost can be zero in economics!

Think of it, why does the concept of opportunity cost arise in the first place?

It arises because resources are scares. Plus, they have alternate uses.

If resources didn’t have alternate uses, we would have used them to do one task only. Then, we wouldn’t be studying opportunity cost or even Economics at all!

If resources were not scarce, that is if they were abundant, we won’t have to think before using them.

But yeah, we do have some abundant resources for which we have zero opportunity cost!

I think y’all would’ve guessed them till now.

If we look around, we have abundant sunlight, water, air, etc.

For these things, we don’t have any opportunity cost! To consume sunlight, air, water, etc., we don’t have to forgo anything.

These are called free goods.

But yeah, it doesn’t end here, we need to keep a few points in mind.

Free goods VS Economic goods

Free goods are those goods which have no opportunity cost attached to it. They are available to us in abundance, i.e., their supply is greater than their demand. They have no price.

Whereas, Economic goods are those goods which have an opportunity cost attached to it. They are scarce. Their demand is greater than their supply. They do have a price.

Effectively, only free goods are the ones with no opportunity cost.

But, we must not forget the fact that the rate at which we are exploiting our environment, some of these abundant free goods might not remain free and might move to the category of Economic goods.

What’s free for you might not be free for someone else

We must also bear in mind, if a good is available to us for free, it doens’t mean it is abundant or it has no opportunity cost.

For instance, while consuming a public place such as a public park, we might think it is free but someone (government, organisation, or be it anyone) has to pay for its maintenance.

Let’s take another example, while attending a marriage, we eat the food but we don’t have to pay for it literally (I am not considering the gifts, money, etc. you give to them because they’re obvious 😁)

But, the ones organising the marriage have to pay.

So, if a thing has no price for you, it might not always be true that it’s a free good. It might be that someone else is paying to make it free for you!