Opportunity cost
Opportunity cost
- When you choose one thing, you give up the next best choice.
- Opportunity cost = the next best alternative you give up.
- It affects every decision-maker:
- a consumer buying a game gives up a book,
- a worker taking one job gives up another's pay,
- a producer making cars gives up trucks,
- a government building a hospital gives up a school.
Practice
Opportunity cost is:
Opportunity cost is what you sacrifice — the next best alternative forgone.
Practice
If a government uses money to build a hospital, the opportunity cost might be:
The opportunity cost is the next best use of that money — e.g. a school.
Practice
Every choice has an opportunity cost, even when no money changes hands.
Choosing to spend time or resources one way always means giving up the next best use.
You've got it
Key idea
- opportunity cost = the next best alternative given up
- it applies to consumers, workers, producers and governments
- every choice has a cost — even when no money changes hands