What is Opportunity Cost?

Opportunity cost measures the cost of any economic choice in terms of the next best alternative foregone.

Mumbai, India (prHWY.com) August 7, 2012 - Opportunity cost measures the cost of any economic choice in terms of the next best alternative foregone. Lack of resources is one of the more basic concepts of economics. Scarcity necessitates trade-offs, and trade-offs result in an opportunity cost.

Many examples of opportunity cost exist at various levels:- the individual, the household, the firm, the government and the economy.

For example: - The opportunity cost of spending money on a luxurious foreign holiday is the lost opportunity to buy a new sedan vehicle.

The opportunity cost of the government spending £20 billion on interest payments on the national debt is the extra money it might have allocated to the National Health Service

The opportunity cost of an economy investing its resources in new capital goods is the current production of consumer goods that is given up

Opportunity cost is useful whilemeasuring the cost and benefit of choices. It often is expressed in non-monetary terms. For example, if a person has time to pick only one elective course, taking a course in microeconomics might have the opportunity cost of a course in management.

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Tag Words: economy investing, opportunity cost

Categories: Finance

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