Opportunity Cost


Opportunity Cost
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%).

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.


Investment dictionary. . 2012.

Look at other dictionaries:

  • opportunity cost — op·por·tu·ni·ty cost n: the cost of making an investment that is the difference between the return on one investment and the return on an alternative Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • Opportunity cost — Economics …   Wikipedia

  • opportunity cost — The price paid for not investing in a different investment. It is the income lost from missed opportunities. Had the money not been invested in land, earning 5%, it could have been invested in T Bills, earning 10%. The 5% difference is an… …   Financial and business terms

  • opportunity cost — noun The cost of an opportunity forgone (and the loss of the benefits that could be received from that opportunity); the most valuable forgone alternative. Thanks to business school, I can understand how Ive actually paid for this time at home… …   Wiktionary

  • opportunity cost — The *cost arising from a decision not to pursue a course of action. Opportunity cost is often measured in terms of the *reward foregone by choosing a next best course of action. For example, if an organization purchases a productive asset for… …   Auditor's dictionary

  • opportunity cost — UK / US noun [countable] Word forms opportunity cost : singular opportunity cost plural opportunity costs business the amount of money that a company or organization loses by deciding to do one thing rather than another …   English dictionary

  • opportunity cost — In economic terms, the opportunities forgone in the choice of one expenditure over others. For a consumer with a fixed income, the opportunity cost of buying a new dishwasher might be the value of a vacation trip never taken or several suits of… …   Universalium

  • opportunity cost — The economic cost of an action measured in terms of the benefit foregone by not pursuing the best alternative course of action. The cost of funds, for example, must be measured in terms of the returns they could earn in the capital markets for… …   Accounting dictionary

  • opportunity cost — The economic cost of an action measured in terms of the benefit foregone by not pursuing the best alternative course of action. The cost of funds, for example, must be measured in terms of the returns they could earn in the capital markets for… …   Big dictionary of business and management

  • opportunity cost — /ˌɒpə tju:nɪtɪ kɒst/ noun the cost of a business initiative in terms of profits that could have been gained through an alternative plan ● It’s a good investment plan and we will not be deterred by the opportunity cost …   Marketing dictionary in english


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