Opportunity cost is the value of the most desirable alternative foregone. Economic decisions involve trade-offs and marginal analysis, considering diminishing marginal utility.
Opportunity cost measures cost by what is given up in exchange. It is the most desirable alternative that was foregone in the decision-making process. For example, if you choose to go to the movies instead of volunteering at a soup kitchen, the latter becomes your opportunity cost.
Most economic decisions involve trade-offs and marginal analysis, focusing on decisions made at the margin. The law of diminishing marginal utility explains that additional gains tend to decrease as more of a resource is acquired, highlighting the importance of considering opportunity costs in decision-making.
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