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What is opportunity cost?

FinanceLesson on requestFree to read

Quick answer

Opportunity cost is the value of the best alternative you give up when you make a choice. Every decision has one — the time, money, or option you didn't pick. It's not just money spent, but the next-best thing you forgo.

Key things to understand

  1. It's not just money spent, but the next-best thing you forgo.
  2. Example: spending an evening studying has the opportunity cost of the movie you skipped.
  3. It's central to smart decisions about money, time, and resources.
  4. Recognizing it helps you weigh trade-offs honestly.

People also ask

Can you give an example of opportunity cost?
If you spend $1,000 on a holiday, the opportunity cost might be the investment returns that money could have earned instead.
Is opportunity cost only about money?
No — it applies to time, attention, and any limited resource.
Why does opportunity cost matter?
It reveals the true cost of a choice by accounting for the best thing you gave up.