Money in Real Life · 45 sec
Opportunity cost
A practical idea for making clearer everyday money decisions.
The useful idea
- The useful idea
In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive
- How it works
Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would have been had if the second best available choice had been taken instead.
- Why it matters
The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen".
Why this matters
Use Opportunity cost to compare the trade-offs before committing money.
Try this
Use Opportunity cost to compare the trade-offs before committing money.
Test your recall
Which idea belongs to the explanation of Opportunity cost?
- The useful idea — correct
- How it works
- Why it matters
In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive
General education only — not personal financial advice.