Opportunity cost
Definition
The value of the next best alternative that must be given up when making a choice. Every decision involves opportunity cost because resources like time, money, and labor are limited, so choosing one option means forgoing another.
Examples
- Choosing to attend college means the opportunity cost is four years of full-time wages you could have earned
- A city spending its budget on a new stadium gives up the opportunity to build a new school
- A farmer planting corn instead of wheat loses the potential revenue from the wheat crop
Study This Concept
Practice opportunity cost with free review games in these units: