How is opportunity cost defined?

Opportunity cost is defined as the cost of the next best alternative foregone when a choice is made. This means that when you decide to allocate resources, such as time, money, or effort, to a particular option, the opportunity cost represents what you could have gained from the alternative you didn’t choose.

For example, if you choose to spend your Saturday studying for an exam instead of going to a concert with friends, the opportunity cost is the enjoyment and experiences you miss out on at that concert. Understanding opportunity cost is crucial for making informed decisions, especially in economics, where scarce resources must be optimized.

This concept helps individuals and businesses evaluate the potential benefits and drawbacks of different choices, emphasizing that every economic decision involves a sacrifice of alternatives.