Opportunity cost is what you would have gained by making the next-best choice.
Opportunity cost is a key concept in economics because it helps describe how people make choices between good but mutually exclusive options when they have scarce resources. It measures or describes the difference between the benefits of what you chose and what you lose by not having chosen a different option.
In the case of opportunity cost, "resources" and "value" go far beyond money to include time, pleasure, and anything else that is both scarce and significant to the person choosing and to the community affected by the choice.
So, for example, if you want to watch two different movies in the theater, the opportunity cost of watching one would be the enjoyment you would get from watching the other. The opportunity cost of earning a graduate degree might be the money you didn't earn during the time you were in school. The opportunity cost to a city of building a stadium might be the lack of funds to renovate the community center. The opportunity cost of investing in a given stock might be the guaranteed interest and limited risk in Treasury bills.
Recent Mentions on Fool.com
- Boeing or Airbus: Which Company Will Dominate This Massive Market?
- 4 Obstacles That Keep Millennials From Buying Their First Homes
- Your Home's Secret Money-Saver
- Where Are the Best-Paying Energy Industry Jobs? Hint: Not in the U.S.
- India Eyeing Mega-Solar Market
- NASA and Elon Musk's SpaceX Make 3D Printing History Today: The First 3D Printer in Space!