1.1.3—Opportunity cost

Opportunity cost is the value of the next-best alternative given up when a choice is made. It is forward-looking and depends on the alternatives actually available.

The chosen option is not itself the opportunity cost. Identify the best rejected use of the same scarce resource, then compare its benefit with the chosen use.

If a student spends Saturday revising instead of working a paid shift, the opportunity cost is the wages from the best available shift, not the revision itself.

Opportunity cost is not always a cash payment and is not the sum of every rejected option.