EconGuru Economics Guide RSS Syndication

EconGuru Economics Guide » Opportunity cost

© Copyright 2006 - 2011 All rights reserved. Assets marked and linked to the original sources are hereby used for educational purposes only and are copyrighted by their respective owners.

Subscribe to EconGuru.

Opportunity cost

Opportunity cost, also economic cost, refers to the cost of something in terms of an opportunity forgone, that is, the benefits that could be received from that opportunity. The most valuable alternative, or second best option compared with your choice, is considered the opportunity cost if exist more than 2 alternatives.

In economic world, opportunity cost needs to be assessed in monetary terms or return rate. In this sense, it's the highest price or rate of return an alternative course of action would provide. It's the benefit you let go to get what you think is a bigger benefit upon current knowledge. But things may turn out to be just opposite what you thought it might be, and opportunity cost in many situations is much bigger than the benefit we get. For example in many countries, environment is the cost of economic boom, though in short term this might seem reasonable in terms of societal welfare, but in long terms, really hard to say.

Opportunity cost is actually beyond measurement. Forget what the teachers told you. The calculation of economic opportunity cost is so much based on only accessible or imperfect information. The fact that we cannot go through every possible path in life prohibits us from knowing what's most valuable and what's second most valuable. To clarify with an simple example, you'll never know what to expect talking to a friend of intimacy if you have stayed in front of computer all day long surfing. And this is not to mention the subjectivity of opportunity cost.

The subjectivity of opportunity cost is the nature of opportunity cost that it may vary from people to people.

<?php bloginfo('name'); ?>

Educating the public since 2006.