What is opportunity cost?

• A. The value of the next best alternative you give up when you make a choice.
• B. The total amount of money you have now.
• C. The price of the item you are buying.
• D. The interest earned on a loan.

Answer: (A)

Opportunity cost is the value of the next best thing you give up when you make a choice. It means you’re weighing what you miss out on by choosing one option over another, including the benefit you could have gained in money, time, or enjoyment. For example, if you spend your allowance on a snack now, the opportunity cost is what you could have gained by saving for a bigger toy or using that money later. The other ideas aren’t opportunity cost: the total amount of money you have is your resources, the price of an item is what you pay to buy it, and interest earned on a loan is about borrowing costs, not the forgone alternatives you chose not to take.