What does opportunity cost mean Meaning and Definition
What does opportunity cost mean
Pronunciation
/ˌɒpəˈtjuːnɪti ˈkɒst/
Part of Speech
Noun
Definition
The value of the next best alternative that is given up as a result of making a decision. Opportunity cost is a fundamental concept in economics, as it helps individuals and businesses evaluate the trade-offs involved in making choices.
Examples
- The opportunity cost of choosing to attend college is the potential income that could have been earned if you had entered the workforce instead.
- By choosing to invest in stocks, the opportunity cost is the potential returns that could have been earned if you had invested in bonds instead.
Synonyms
- Alternative cost
- Trade-off
Antonyms
- Benefit
- Gain
Additional Information
Opportunity cost is a crucial concept in economics, as it helps individuals and businesses make informed decisions about how to allocate their resources. By considering the opportunity cost of a particular choice, decision-makers can evaluate the potential trade-offs and make more informed decisions. Opportunity cost can be applied to a wide range of situations, from personal finance to business strategy.
For example, if a person is considering whether to attend college or enter the workforce, they should consider the opportunity cost of each option. The opportunity cost of attending college is the potential income that could have been earned if they had entered the workforce instead. On the other hand, the opportunity cost of entering the workforce is the potential education and skills that could have been gained if they had attended college.
Opportunity cost can also be applied to business decisions. For example, a company may be considering whether to invest in a new project or expand an existing one. The opportunity cost of investing in the new project is the potential returns that could have been earned if they had expanded the existing one instead.
Eymology
The term “opportunity cost” was first coined by Austrian economist Friedrich von Wieser in the late 19th century. Wieser used the term to describe the value of the next best alternative that is given up as a result of making a decision.
Usage Notes
Opportunity cost is often used in economics and business to evaluate the trade-offs involved in making decisions. It can also be used in personal finance to help individuals make informed decisions about how to allocate their resources.
Cultural References
Opportunity cost has been referenced in popular culture, including in the TV show “The Office” and the movie “The Social Network”.
Idiomatic Expressions or Phrases
- “Opportunity cost of not doing something”
- “The cost of missing out”
Related Words or Phrases
- Trade-off
- Alternative cost
- Cost-benefit analysis
Collocations
- Opportunity cost of attending college
- Opportunity cost of investing in stocks
Frequency of Use
Opportunity cost is a commonly used term in economics and business, but it is not as widely used in everyday conversation.
Common Misspellings
- Opertunity cost
- Opportunty cost