What is opportunity cost and why does it matter?
Economics
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Answer
Opportunity cost is the value of the next best alternative you give up when making a choice.
Example: You have $1,000. You can invest it (earning $100/year) or buy a new phone.
- If you buy the phone, the opportunity cost is $100/year in investment returns.
- If you invest, the opportunity cost is not having the phone.
It applies everywhere:
- Going to college: tuition + 4 years of salary you could have earned
- A business choosing Product A over Product B: the profit from B is the opportunity cost
Why it matters: It forces you to think about tradeoffs. Every decision has a cost — even "free" things cost your time.
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