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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.
Opportunity costs can be in monetary or non monetary terms. An example of the monetary opportunity cost is in the above example. Opportunity cost is usually expressed as a relative ratio of one choice of an opportunity relative to the other opportunity. Opportunity cost has a lot of practical applications in real life.One such area of application is making consumerâs choice.n example of the monetary opportunity cost is in the above example. Opportunity cost is usually expressed as a relative ratio of one choice of an opportunity relative to the other opportunity. Opportunity cost has a lot of practical applications in real life. One such area of application is making consumerâs choice.