What is opportunity cost? Explain with the help of a numerical example.

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An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. In other words, the cost of enjoying more of one good in terms of sacrificing the benefit of another good is termed as opportunity cost of the additional unit of the good.

Example: We have Rs 15,000 with two choices a) to invest in the shares of a company XYZ or b) to make a fixed deposit which gives interest 9%. If the company XYZ gives a return of 15%, we will benefit when we invest in the shares as the alternative would be less profitable. However if company’s return is only 3% when we could have made a return of 9% from FD, then our opportunity cost is (9% - 3% = 6%).

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Central problems arise in an economy because
i. Human wants are unlimited.
ii. Resources are scarce in relation to their wants. The resources available with each individual to satisfy their needs are limited. These individuals have to rationally manage their expenditure to promote economic interest.
iii. Resources have alternative uses. For example, land may be used for agricultural activity or for industrial purpose. Central problem - ‘For whom to produce’: ‘For whom to produce’ refers to the problem of distribution of final goods and services or the problem of distribution of income. It has two aspects. The first aspect relates to personal distribution and the second aspect relates to functional distribution. Personal distribution refers to output/income share of individuals or households in society. Functional distribution refers to income share of different factors of production. Here, the problem is whether allocation of resources is promoting equality or not. Equality is a social virtue, and inequality may induce high saving, investment and hence high rate of growth.

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Economy is the system of trade and industry by which the wealth of a country is made and used. It is a system which provides the people of society to earn a living.

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Basis of difference	Micro Economics	Macro Economics
Meaning	Microeconomics is the study of economics at an individual, group or company level.	Macroeconomics, on the other hand, is the study of a national economy as a whole.
Focus	Microeconomics focuses on issues that affect individuals and companies. This could mean studying the supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business.	Macroeconomics focuses on issues that affect the economy as a whole. Some of the most common focuses of macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports.
Example	An example of a microeconomic issue could be the effects of raising wages within a business.	where as in macroeconomics, a common issue is the effects of certain policies on the national or regional economy.

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In a market economy, all economic activities are organised through the market. It is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning.