Opportunity cost: Difference between revisions
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'''Opportunity cost''' is an economic concept that means "the value of the next best alternative". The best way to explain it is with a few examples: | '''Opportunity cost''' is an [[economics|economic]] concept that means "the value of the next best alternative". The best way to explain it is with a few examples: | ||
# If I quit my job and spend a year travelling, the direct [[cost]] is whatever I spend on plane tickets, food and accommodation while travelling. The opportunity cost is that direct cost plus the year's salary foregone - because if I hadn't gone travelling, not only would I have saved the money, I would have earned a salary as well. | |||
# If I buy a new pair of shoes, the direct cost is what I paid for them. The opportunity cost is the value of the next best thing I could have done with that money. | |||
Revision as of 00:24, 10 February 2008
Opportunity cost is an economic concept that means "the value of the next best alternative". The best way to explain it is with a few examples:
- If I quit my job and spend a year travelling, the direct cost is whatever I spend on plane tickets, food and accommodation while travelling. The opportunity cost is that direct cost plus the year's salary foregone - because if I hadn't gone travelling, not only would I have saved the money, I would have earned a salary as well.
- If I buy a new pair of shoes, the direct cost is what I paid for them. The opportunity cost is the value of the next best thing I could have done with that money.