Opportunity Cost

Opportunity cost is defined as the value given up by selecting one of a group of mutually exclusive alternatives. The fundamental economic problem is one of scarcity. Humans have virtually unlimited needs and wants for goods and services, but resources or inputs, such as land, labor, and capital, are limited. This combination of unlimited demand and scarce resources compels individuals and societies to make choices. When a choice is made, there is a trade-off and something must be given up. The value of the next best alternative that might have been chosen is called the opportunity cost. All decisions made by individuals and societies have an opportunity cost that may be thought of in monetary or nonmonetary terms. For example, the decision to take a ...