Opportunity cost represents the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another.
When you’re presented with a choice, the opportunity cost is the value of what you don’t pick. In other words, it’s the value of what you give up. (e.g., choose from two pieces of candy → the one people didn’t choose is the opportunity cost. Sometimes, we have more than one option to choose from. When that’s the case, opportunity cost is the value of the next-best alternative. (e.g., choose from three pieces of candy → pick one and rank the second choice; the second choice is the opportunity cost. (The cost of missing out on their second favorite.)
Here are some examples for kids of opportunity cost in everyday life:
- 1. Choosing to play video games instead of doing homework — the opportunity cost is time lower grades and less free time later on.
- 2. Deciding to spend money on a toy instead of saving it — the opportunity cost is not having enough money to buy something more important or valuable later.
- 3. Choosing to watch TV instead of going outdoors to play: here, the opportunity cost is missing out on exercise, fresh air and socializing with your friends.
- 4. Deciding to eat junk food instead of healthy food: the opportunity cost is potentially poorer health and lower energy levels.
- 5. Choosing to stay up late instead of going to bed at a sensible time: feeling tired and less focused the next day is the opportunity cost.
