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The Persuasive Power of Opportunity Costs
The concept of opportunity costs is a microeconomic theory that has had a significant contribution to the daily economic choices of rational consumers. Given the key economic problem of scarcity of economic resources and unlimited alternative demands for these scarce economic resources, consumers are forced to make hard choices regarding their wants. Since the resources are insufficient to meet all the needs, rational consumers therefore, have to prioritize their consumption choices and forge other demands, based on the ranking of these wants. Since not all the human wants can be satisfied, consumers have to forge some of their demands by settling on their consumption pattern. Such decision involving what to consume and what to forgo at the expense of the chosen community leads to the concept of opportunity costs. From the economic point of view, opportunity cost is the monetary valuation of the forge community when making decisions regarding one’s consumption pattern. In an article “The Persuasive Power of Opportunity Costs” Shane Frederick explained that framing economic choices by taking into account the extent of opportunity costs involved affects the consumption choices of the consumers. According to Frederick, explicit opportunity costs (especially larger amounts) impact on the choices of rational consumers.
The opportunity costs may either be small or large when quantified in monetary values. Under certain circumstances, the opportunity costs of the forge items may be framed such that it appears large. For instance, Frederick, when shopping for his first stereo system had to make a hard choice between Sony and Pioneer costing $700 and $1000 respectively. Since the $300 difference between these two systems would be spent on CDs, Frederick settled for Sony and $300 valued CDs.............
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