What is the definition of opportunity cost in economics?

Opportunity cost is defined as the cost of the next best alternative that is foregone when a choice is made. This concept is a fundamental principle in economics, emphasizing the idea that every decision comes with trade-offs. When individuals or businesses choose one option over another, the true cost of that decision isn't just measured in monetary terms, but in the value of what is given up.

For instance, if a student decides to spend time studying for an exam instead of going out with friends, the opportunity cost is the enjoyment and experiences missed with those friends. In economic terms, acknowledging opportunity cost allows decision-makers to weigh their options more effectively, ensuring that resources—be they time, money, or labor—are allocated in a way that maximizes utility or returns. Thus, the essence of opportunity cost encapsulates the trade-off inherent in any choice, highlighting the importance of considering what is sacrificed when an option is selected.