ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -“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-2: -Opportunity cost refers to what you have to give up to buy what you want in terms of other goods or services. When economists use the word “cost, ” we usually mean opportunity cost. The word “cost” is commonly used in daily speech or in the news.

Detailed explanation-3: -Opportunity cost does not show up directly on a company’s financial statements. Economically speaking, though, opportunity costs are still very real. Yet because opportunity cost is a relatively abstract concept, many companies, executives, and investors fail to account for it in their everyday decision making.

Detailed explanation-4: -“The real cost of any purchase isn’t the actual dollar cost. Rather, it’s the opportunity cost-the value of the investment you didn’t make, because you used your funds to buy something else.”