Opportunity cost refers to the value of the next best alternative that is foregone when making a decision. It is the cost of choosing one option over another, and it encompasses both financial and non-financial aspects.
For example, if a person decides to spend their money on a vacation, the opportunity cost is the potential alternative uses of that money, such as investing in stocks, paying off debt, or purchasing a car. The person must weigh the benefits and drawbacks of each option and choose the one that has the highest value to them.
Opportunity cost is not always monetary. It can also include intangible factors, such as time, effort, and enjoyment. For instance, if a student decides to spend their evening studying for an exam, the opportunity cost may be not being able to spend time with friends or engage in leisure activities.
Understanding opportunity cost helps individuals and businesses make more informed decisions by considering all possible alternatives and evaluating their respective costs and benefits.
Opportunity cost
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