ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What is the simple definition of opportunity cost? Opportunity cost is the value of what you lose when choosing between two or more options. Every choice has trade-offs, and opportunity cost is the potential benefits you’ll miss out on by choosing one direction over another.

Detailed explanation-2: -“Opportunity cost is the value of the next-best alternative when a decision is made; it’s what is given up, ” explains Andrea Caceres-Santamaria, senior economic education specialist at the St. Louis Fed, in a recent Page One Economics: Money and Missed Opportunities.

Detailed explanation-3: -When we acquire something, we pay two costs: the price we pay for it and the cost of what we have given up to acquire it. With our money, if we choose to invest it, our opportunity cost will be not having saved it; if we decide to save it, our opportunity cost will be not having invested it.

Detailed explanation-4: -The concept of opportunity cost is used in decision-making to help individuals and organizations make better choices, primarily by considering the alternatives. Opportunity costs incorporate the cost and benefit of each choice, which can at times be challenging to estimate.

Detailed explanation-5: -Opportunity cost (also known as “alternative cost, ”) is the difference between a project’s cost estimate and another option that must be foregone in order to implement the project. Every choice we make also means giving up another option.