Opportunity cost is what a person sacrifices when they choose one option instead of another.
More specifically:
The potential gains that an individual, investor, or corporation misses out on when choosing one option over another are known as opportunity costs. Opportunity costs are easy to miss since they are unseen by definition. Understanding the opportunities that may be missed when a company or individual chooses one investment over another aids for better decision-making.
What are some real-life examples of opportunity cost?
The night before a test, a student spends three hours and $20 at the movies. The opportunity cost is the amount of time spent studying vs the amount of money spent doing something else.
Planting wheat is a farmer’s choice; the opportunity cost is planting a different crop or making a different use of the resources (land and farm equipment).
Instead of driving to work, a commuter rides the train. The train takes 70 minutes, while driving takes 40 minutes. Each day, the opportunity cost is an hour spent elsewhere.
For a more comprehensive walk through of opportunity cost – please see this article – giving you either a 3 minute explainer video, or a 5 minute story
