Opportunity Cost

 

'Opportunity Cost' is an economic term that refers to the cost of choosing between an option and the next best available alternative.

Economists use opportunity costs to assign more accurate values to economic decisions. The argument is that, given two options (say A and B), the value of choosing option A is it's real value minus the real value of option B that is foregone by choosing A. That is, the opportunity cost of choosing option A, is the foregone benefit of not choosing option B. For example, the opportunity cost of going to college for four years is the money you could have earned by working instead during that time

It's also important to note that opportunity cost encompasses measures of value or utility, other than money, such as time, satisfaction, or other potential benefits.

As Investors use the term, opportunity cost encompasses any other use to which the money could be put, including lending to others, investing elsewhere, holding cash, and simply spending the funds.

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