Opportunity cost is the value of the next-best alternative when a decision is made; its what is given up. It refers to what you have to give up to buy what you want in terms of other goods or services. Opportunity cost is the benefit that an individual is losing out by choosing one option instead of another option. Here are some examples of opportunity cost:
- A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else.
- A farmer chooses to plant wheat; the opportunity cost is planting another crop instead.
- A company decides to invest in a new manufacturing plant in Los Angeles instead of Mexico City. The opportunity cost is the potential profits that could have been made by investing in Mexico City.
- A business decides not to upgrade its equipment. The opportunity cost is the potential increase in productivity that could have been achieved with the upgraded equipment.
- A person chooses to buy the most expensive product packaging option over cheaper options. The opportunity cost is the money that could have been saved by choosing a cheaper option.
- A person decides to take a vacation instead of attending a training program. The opportunity cost is the knowledge and skills that could have been gained from attending the training program.
- A government decides to spend money on welfare instead of paying off debt. The opportunity cost is the potential reduction in debt that could have been achieved.
- A person decides to sell stocks now instead of waiting for two months. The opportunity cost is the potential increase in stock value that could have been gained by waiting.
Opportunity cost is an important concept in economics and decision-making. It helps individuals and businesses make informed choices by considering the potential benefits and drawbacks of different options.
