Opportunity Cost

Opportunity Cost means the price or cost of next best alternative that is available to a
business, Investor or customer that has been foregone and nor been chosen.

The value of the second-best choice, or what you gave up making a decision.

Opportunity cost is a concept all of us use every day without knowing it. Each time we make
a choice, we have no chosen something else. The value of the something else is our
opportunity cost.

Example: Assume your mother will give you Rs. 100 to buy something after school. You
want to buy an ice cream or a chocolate mike shake. But you cannot purchase both items with
the money you have. After thinking for some time, you decided to buy Ice cream. So, the
opportunity cost of Buying ice cream is the Chocolate milkshake.

Specialization

In the earliest societies, people had to produce everything they wanted for themselves. As
societies developed, with the introduction of new technology, one person could produce more
than he/she needed. The result was that some people had a surplus of the goods they
produced and found they were able to exchange this surplus, with the others. Specialization
occurs when people and businesses concentrate on what they are best at.

The process of concentrating on and becoming expert in a particular subject or skill.

Types of specialization

1. Specialization by individual employee

Ex- Finance Manager

Marketing Manager
Singer
Actor/ Actress

2. specialization by firm (business)

Ex- Bakery
Hospitals
Garment
 3. specialization by country
Ex – Japan – Auto Mobile
Switzerland- Chocolate and Cheese
Middle East – Oil and Gas

Benefits of specialization

1) Goods and services production are enhanced with better quality.

2) Workers can be trained easily.
3) Countries can export products and can earn foreign exchange.
4) Consumers have access to a greater variety of products
5) Less wastage will reduce the total cost.
6) Increased efficiency.

Trade

Trade involves transfer of goods or services from one person or entity to another for money,
goods or services.
In old Days (Barter System)
Goods were exchanged with one another, depending on what you needed and what you could
give in return.
Ex Wheat flour for batter
Modern Day Trading
Trade is the transfer of good and services usually in exchange for money.
Ex – Purchase a car for money.
Type of Trade

Home / Domestic Trade

The purchase of sales and good and services inside the country.

This can be classified into two

1. Wholesale Trade.

Whole sales mean to sell goods relatively in large quantity.

The wholesale by goods in large quantities from the manufacture for the purpose of future
selling in small quantities to retailers.
2. Retail trade.

Retailing is business where an organization directly sell its products services to and
end customer for personal use.
Foreign / International Trade

International trade is the exchange of goods, and services across international borders or

territories because there is a need or want of goods or services.

This can be classified in to main two factors.

1. Import Trade

It refers to purchase goods and services from the foreign country

Ex – Import cars from Japan

2. Export Trade

Selling goods and services from the domestic county to other countries.

Ex- Export Sri Lankan Tea to Europe countries.