opportunity cost

Example

“The opportunity cost of attending college includes not just tuition but the salary foregone by not working full-time.”

Memory Tip

OPPORTUNITY COST = what you give up. Every choice costs you the next best option.

Why It Matters

Understanding opportunity cost helps you make better financial decisions by forcing you to consider what you are giving up, not just what you are gaining. Every dollar spent or hour invested in one thing means you cannot spend it elsewhere, and recognizing this trade-off leads to more intentional choices about your time and money.

Common Misconception

Many people think opportunity cost only applies to big decisions like career changes or major purchases, but it actually applies to everyday choices. Spending two hours watching television has an opportunity cost of what else you could have done, whether that is exercising, learning a skill, or earning money.

In Practice

If you are offered a job paying 50,000 dollars per year but turn it down to take a job paying 60,000 dollars, the opportunity cost of your choice is the 50,000 dollars you gave up. Over five years, that decision costs you 250,000 dollars in foregone income, which helps illustrate why comparing alternatives carefully before deciding is so important.

Etymology

OPPORTUNITY (favorable chance) COST (what is given up). The COST of a missed OPPORTUNITY.

Common Misspellings

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