Bottled water Economics research Paper Example | Topics and Well Written Essays - 5000 words

Bottled water Economics - Research Paper Example The opportunity cost, is the cost foregone as a result of choosing a given alternative, it is the actual value of the next best alternative that was forgone in the process of making a decision about the current business or investment. Opportunity cost, also referred to as economic opportunity loss is a term derived from Keynesian theory which implies a choice between different options which yield mutually exclusive results, this means that you can only choose one and forgo the other option. It explains the relationship between scarcity and choice and is applied in many areas where financial and monetary decisions are made. For example, the opportunity cost investing in a bottled water company will be the cost foregone in investing the money elsewhere (other business ventures if this was the next best alternative) or the interest lost if that money was left in the bank to accrue interest(if this was the next best alternative). Opportunity cost is evaluated in terms of money, time, mat erial and anything of value. for example someone may decide to go for holiday in Africa and forgo staying in his house and improve it, another may prefer to choose to watch one program and forgo another if the occur at the same time and the person doesn’t have the means of recording the other program.The evaluation of opportunity cost is based on several factors, first is the monetary value of the next best alternative that was foregone. ... If the opportunity cost is higher then the risk should be taken, in this case, for the bottling water company the environmental risk is damage to environment due to plastic bottles, however the opportunity cost is higher than the total damage and hence environmental consideration cannot prevent the starting of this business, furthermore, money, less than the opportunity cost can be dedicated into research on biodegradable plastics. Demand Demand can be defined as the ability or wiliness of consumers to purchase goods and services at a given price within a given time frame. The demand graph or the demand schedule is a graphical representation of the effect of price on demand of goods and services holding all other factors constant, if the price of a commodity e.g. bottled water go up, then the demand for it will reduce and vice versa, the graph below illustrates this Figure 1 showing the demand schedule The law of demand states that increase in price of commodities causes corresponding decrease in the quantity demanded. Decrease in price results to an increase in quantity demanded for a given product provided other factors remain constant. Supply These represent the quantity of goods and services that a given producer or manufacturer is willing to bring to the market at a given price. Supply of commodities is greatly influenced by price of the commodity and other factors. The law of supply states that the quantity supplied increases as the price of the product increases holding all other factors constant. This is because the suppliers are able to get a higher profit margin. Figure 2 showing the supply schedule