Opportunity Costs

Definition

Opportunity costs refer to the value of the next best alternative that is forgone when making a choice. It represents the benefits or profits that could have been gained from an alternative option.

Related terms

Trade-offs: Trade-offs are choices made between different options due to limited resources. For example, choosing to study for an exam instead of going out with friends is a trade-off.

Sunk Costs: Sunk costs are expenses that have already been incurred and cannot be recovered. They should not be considered when making future decisions.

Comparative Advantage: Comparative advantage refers to the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost compared to others.