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The existence of external benefit and external cost leads to misallocation of resources. External cost For example, when drivers are not liable for the health damage of car exhaust, drivers will equate only marginal private cost with marginal benefit. But if drivers are forced to pay for the health damage of car exhaust, their marginal cost will go up by the amount of the external cost.
EXAMPLES OF OPPORTUNITY COSTS. One way to demonstrate the concept of opportunity costs is through an example of investment capital. A private investor purchases $10,000 in a certain security, such as shares in a corporation, and after one year the investment has appreciated in value to $10,500. The investor's return is 5 percent.