The Cost-of-Production Theory

When economists refer to the “opportunity cost”, they mean the alternative use of that resource. In General, the opportunity costs of choice the value of the best alternative forgone, in a situation in which should be made a choice between several mutually exclusive alternatives in conditions of limited resources.

If you spend time watching television or spend time and money going to a movie, you cannot spend that time reading a book in the library and in the case of the cinema, you cannot spend the money on something else.

All production involves a cost. This cost is not counted simply in terms of money but also in terms of resources used. The resources used in producing a good and service are the real costs of that product. For example, a road construction. In this type of activity the real cost are the human, capital and natural resources in consumes. To road construction requires the labour of many people. The capital resources these people use include equipment, machines, tools. The road construction also requires natural resources, such as bitumen, gravel and sand.

Since resources are limited and human wants are unlimited, people and societies must make choices about what they want most or put more simply, "What you would have done if you didn't make the choice that you did". Each choice involves costs. The cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production (including labor, capital, or land) and taxation.

The resources that were used for construction of roads cannot be used for other activities. In fact, any resources used for the road construction ar...

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... is used to make or do something else, which can then be sold to another party. Consumer goods are the final goods. In principle, these goods are things purchased by average customers, and will be consumed or used right away. This is in contrast to other types of goods, called intermediate goods. Intermediate goods are products produced or things sold that will be used in the making of something else by another manufacturer or an assembler.

If a nation increases its production of consumer goods, its people will better lives today.

Choosing between three employers is an example of a choice a society must make. Every person and society in general must make a choice and understand what can be done to get the benefit. Every economic decision requires a choice, economics is a study of tradeoffs. When you analyze each side of a tradeoff, you can make better decisions.