What is opportunity cost?

• A. The monetary cost of a decision.
• B. The value of the next best alternative forgone when a choice is made.
• C. The total expenditure involved.
• D. The benefit of the chosen option.

Answer: (B)

Opportunity cost is about what you give up when you make a choice. It’s the value of the next best alternative you forego as a result of choosing something else. It isn’t just the money you spend or the explicit price tag; it’s the benefit you would have received from the option you didn’t choose.

For example, if you spend time studying, the opportunity cost is the wage you could have earned working during that time or the leisure you’re giving up. If you spend money on one item, the opportunity cost is what else you could have bought with that money, or the savings you could have built.

In short, opportunity cost captures the trade-off faced due to scarcity, highlighting the value of the best alternative you sacrifice.