Opportunity Cost
What is Opportunity Cost?
The value of the next-best alternative you give up when you make a choice.
Understanding Opportunity Cost
Every choice has a cost beyond the money spent: the best option you did not take. An hour spent studying is an hour not spent working; money used to pay off a loan is money not invested.
Opportunity cost is central to economics because resources are scarce. It explains why people and countries specialize, and why a choice can be costly even when it seems free.
Example
If you could earn $30 an hour but spend three hours cleaning your home instead, the opportunity cost is $90 of income, before any cost of supplies.
FAQ
Is opportunity cost a real cost if no money changes hands?
Yes. Economists count it because it reflects a real loss of the benefit you could have had.