2281 · 1.3
Opportunity cost
Whenever you choose one thing you give up the next best thing you could have had instead. That sacrifice is the opportunity cost, and it exists because resources are scarce.
Need to know
What you need to know
- Opportunity cost = the next best alternative forgone when a choice is made.
- It exists because resources are scarce and wants are unlimited.
- It is measured in what is given up, not simply in money spent.
- Only the *next best* alternative counts — one alternative, not all of them.
Explanation
Opportunity cost
- Scarcity forces a choice between alternative uses of a resource.
- The next best alternative not chosen is the opportunity cost.
- Measure it in the thing given up — hours, goods, output — not just money.
- On a PPC, moving along the curve shows that opportunity cost directly.