While buying refreshments for an upcoming party, you notice that a six-pack of Bud lite beer costs $6 and a six-pack of Miller lite beer costs $8. You buy the six-pack of Miller lite beer, although you wonder if maybe two six-packs of Bud lite beer would have been a better choice. The opportunity cost of the Miller lite beer is two six-packs of Bud lite beer.
What are Opportunity Costs and Examples?
When economists talk about the “opportunity costs” of a resource, they mean the value of the next highest alternative use of that resource. For example, if you spend your time and money on movies, you can't spend that time at home reading a book, and you can't spend that money on something else.
What is opportunity cost?
Opportunity cost is generally defined as the next best option. Also called replacement cost, it is the loss of profit that could have been incurred if another option had been chosen. This can also be explained as loss of utility due to change of choice.
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