The Opportunity Cost Principle - Economics 101 Review

"The inadequacy of resources to produce everything that everyone wants is the fundamental fact of life in every economy -- capitalist, socialist or feudal. This means that the real cost of anything consists of all the other things that could have been produced with those same resources.

Building a bridge means using up resources that could have been used building homes or a hospital. Going to college means using up vast amounts of resources that could be used for all sorts of other things.

Prices force people to economize. Subsidizing prices enables people to take more resources away from other uses without having to weigh the real cost.

Without market prices that convey the real costs of resources denied to alternative users, people waste.

That was the basic reason why Soviet industries used more electricity than American industries to produce a smaller output than American industries produced. That is why they used more steel and cement to produce less than Japan or Germany produced when making things that required steel and cement."

-- Thomas Sowell