Opportunity Cost
Opportunity cost is the value of the next best alternative that you give up when you make a choice.
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Opportunity cost is the value of the next best alternative that you give up when you make a choice.
- Spending an hour studying costs the hour of leisure
- Used in personal and national decisions
- Trade-offs are everywhere
🧠 Quick quiz
Three questions. Score 2 or more to complete the topic.
What is Opportunity Cost?
Within Economics & Civics, which covers money, markets, business, government, law and citizenship: how societies are organised and run, this topic explains Opportunity Cost. Economics and civics topics explain how money, markets, laws and government affect people, so each topic here pairs a clear definition with a model.
Check that you can explain Opportunity Cost in your own words and give one example from everyday life. If you can do that, you have understood the core idea.
Understanding Opportunity Cost helps you read the news critically and weigh up policies, choices and arguments about society.
Opportunity Cost in detail
Opportunity cost is the value of the next best alternative that you give up when you make a choice. If you spend Saturday working for £50 instead of going to a match, the opportunity cost is the enjoyment of the match, not the money. For a government, spending on a new hospital may mean not building a school.
It shows that "free" things are rarely free, since time and resources have alternative uses. Production possibility frontiers (PPFs) illustrate opportunity cost for an economy. Thinking about opportunity cost helps people and organisations compare options and make better decisions.
How the interactive helps you understand Opportunity Cost
Click a card to flip it and reveal the answer, then move on to the next one.
Before you change anything, predict the result. Then change one value at a time and check whether your prediction was right. This is a quick way to build a correct mental model of Opportunity Cost.
Real-life uses and examples
- Give a balanced answer about Opportunity Cost by considering more than one point of view.
- Relate Opportunity Cost to a news story about prices, jobs, elections or government spending.
- Use Opportunity Cost to weigh up the pros and costs of a policy or decision.
Common mistakes to avoid
- Confusing a short-term effect with a long-term one.
- Giving an opinion without evidence or a clear economic or civic reason.
- Learning the definition without testing it. Use the quiz and the interactive to check that you can apply the idea.
Frequently asked questions about Opportunity Cost
What is Opportunity Cost?
Opportunity cost is the value of the next best alternative that you give up when you make a choice.
What are the most important points about Opportunity Cost?
The main points are: Spending an hour studying costs the hour of leisure; Used in personal and national decisions; Trade-offs are everywhere.
Why is Opportunity Cost useful?
Understanding Opportunity Cost helps you read the news critically and weigh up policies, choices and arguments about society.
How can I practise Opportunity Cost?
Open the interactive at the top of this page and change the controls one at a time. Predict the result before each change, then take the three-question quiz. A score of two or more marks the topic as complete on this device.
Which topics are related to Opportunity Cost?
Related topics in Economics & Civics include Goods and Services, Market Equilibrium, Types of Economic System.