Opportunity Cost

What Does It Mean?
What Does Opportunity Cost Mean?
1. The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

2. The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6% - 2%).
Click here for Investopedia FXtrader
Investopedia Says
Investopedia explains Opportunity Cost
1. The opportunity cost of going to college is the money you would have earned if you worked instead. On the one hand, you lose four years of salary while getting your degree; on the other hand, you hope to earn more during your career, thanks to your education, to offset the lost wages.

Here's another example: 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.).

In both cases, a choice between two options must be made. It would be an easy decision if you knew the end outcome; however, the risk that you could achieve greater "benefits" (be they monetary or otherwise) with another option is the opportunity cost.
Related Links
Rate this Term: Your Rating:    Overall Rating: Vote Now!
Sponsored Links
MARKETPLACE
Click Here To View Investopedia Videos
TRADING CENTER
CURRENT HIGH YIELD SAVINGS RATES
Type
Overnight avgs
Rate data provided by
Bankrate.com
add investopedia foot
www.investopedia.com