Opportunity Cost
The value of the next best alternative that must be foregone when a choice is made.
Opportunity cost is not necessarily a monetary cost; it's about the value of what you give up. Every decision has an opportunity cost, even if it's just your time.
Word relationships
- trade-off: 'Trade-off' is a general term for giving up one thing for another, while 'opportunity cost' is the specific value of the next best alternative foregone.
- alternative cost: A less common but similar term, emphasizing the cost of the alternative not chosen.
Commonly confused with
- monetary cost: Monetary cost is the explicit cash outlay, while opportunity cost is the value of the foregone alternative, which may or may not be monetary.
Collocations
- high opportunity cost
- low opportunity cost
- calculate opportunity cost
- implicit opportunity cost
Example sentences
- "The opportunity cost of going to college is the income you could have earned if you had worked instead." Explaining economic decision-making.
- "By investing heavily in research and development, the company accepted the opportunity cost of not expanding its marketing budget." Business strategy discussion.
Memory hook
When you choose one OPPORTUNITY, you pay the COST of losing the next best one. OPPORTUNITY COST = What you give up
When not to use
Don't use 'opportunity cost' to refer to all costs or simply a bad outcome. It specifically refers to the value of the best alternative not chosen.
Fun facts
- The concept of opportunity cost is fundamental to understanding comparative advantage in international trade.
Related words
Explore more words
trade-off, inefficiency, prioritize, dilemma, efficient, marginalism
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