Economics – Scarcity, choice and opportunity cost | e-Consult

Definition: Opportunity cost is the value of the next best alternative forgone when making a choice. It represents what you give up to get something else.

Arising from Choices: Opportunity cost arises because resources are scarce. Individuals and societies have limited resources (time, money, land, labor, capital) but unlimited wants. This scarcity forces us to make choices. Every choice involves sacrificing something else. The opportunity cost is the value of the most valuable thing we *don't* choose.

Examples:

• Individual: Choosing to spend an evening studying for an exam means foregoing the opportunity to socialize with friends or work a part-time job. The opportunity cost is the value of the social interaction or wages lost.
• Society: A government deciding to spend money on building a new hospital forgoes the opportunity to spend that same money on education or infrastructure. The opportunity cost is the benefit that would have been derived from the alternative use of the funds.
• Business: A company choosing to invest in a new factory forgoes the opportunity to invest that capital in research and development or marketing. The opportunity cost is the potential return from the forgone investment.

In essence, opportunity cost highlights the trade-offs inherent in decision-making and the importance of considering the full cost of a choice, not just the explicit monetary cost.