Opportunity Cost

Opportunity cost is the cost of an economic decision which is measured in terms of the next best alternative foregone. It is the cost of the most valuable foregone alternative.

For example, when deciding whether to buy a new laptop or a new phone, the opportunity cost of the laptop would be the phone, and vice versa.

For example, a person has a choice of two jobs. One job pays $10 per hour and the other pays $12 per hour. If the person takes the $10 per hour job, the opportunity cost is the $2 per hour difference between the two jobs.