Opportunity Costs
Definition
Opportunity costs refer to the benefits or values of the next best alternative that must be given up when making a decision. In other words, it is the value of what you have to sacrifice in order to choose one option over another.
Analogy
Imagine you are at an all-you-can-eat buffet and you only have one plate. Each time you fill your plate with food, you give up the opportunity to try other dishes because there is limited space on your plate. The more food you put on your plate, the higher the opportunity cost of trying other dishes becomes.
Related terms
Scarcity: Scarcity refers to limited resources in relation to unlimited wants and needs.
Trade-off: A trade-off occurs when choosing one thing means giving up something else.
Marginal Cost: Marginal cost refers to the additional cost incurred by producing or consuming one more unit of a good or service.
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