Cost of Opportunity

In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.[1] The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen". Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".[2] The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.[3] Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.
Contents [hide]
1 History
2 Opportunity costs in consumption
3 Opportunity costs in production
3.1 Explicit costs
3.2 Implicit costs
4 Non-monetary opportunity costs
5 Evaluation
6 See also
7 References
8 External links
History [edit]

The term was coined in 1914 by Austrian economist Friedrich von Wieser in his book "Theorie der gesellschaftlichen Wirtschaft".[4] It was first described in 1848 by French classical economist Frédéric Bastiat in his essay "What Is Seen and What Is Not Seen".
Opportunity costs in consumption [edit]

Opportunity cost may be expressed in terms of anything which is of value. For example, an individual might decide to use a period of vacation time for travel rather than to do household repairs. The opportunity cost of the trip could be said to be the forgone home renovation.[citation needed]
Opportunity costs in production [edit]

Opportunity costs may be assessed in the decision-making process of production. If the workers on a farm can produce either