Opportunity cost

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Opportunity Cost

Opportunity cost (/ɒpəˈtjuːnɪti kɒst/) is a fundamental concept in economics that refers to the potential benefit an individual, investor, or business misses out on when choosing one alternative over another.

Etymology

The term "opportunity cost" comes from the Latin word opportunitas, meaning "fit, convenient, or seasonable time," and the Old French cost, meaning "outlay or expenditure". It was first used in the early 20th century by Austrian economist Friedrich von Wieser in his work on the theory of marginal utility.

Definition

Opportunity cost is the cost of forgoing the next best alternative when making a decision. It is an important concept in decision making, investment, and economics because it helps individuals and businesses to measure the trade-off of doing one action over another.

Related Terms

  • Trade-off: A situation where you have to choose between two or more different options and by choosing one, you lose the other(s).
  • Cost-benefit analysis: A systematic approach to estimate the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings.
  • Sunk cost: A cost that has already been incurred and cannot be recovered.
  • Scarcity: The basic economic problem that arises because people have unlimited wants but resources are limited.

See Also

External links

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