Opportunity Costs

Opportunity costs is the cost of doing an activity instead of doing something else. We have a choice between two or more alternatives, but we will choose the best alternative for us. Opportunity cost is the best alternative that must be sacrificed in order to get something else you want.

• If a gardener decides to grow carrots, his or her opportunity cost is the alternative crop that might have been grown instead (potatoes, tomatoes, pumpkins, etc.).
• A person has to decide whether to buy a house or live in an apartment and pay the rent, the opportunity cost to buy a house is that the person will pay the mortage but one day the house will be his or hers. Instead if he/she decides to live in an apartment, she/he will pay the rent and the apartment will never be his/hers.