ECONOMICS & DECISION-MAKING
Opportunity Cost
Compared with what?
What it means
Every choice prevents another choice. Opportunity cost is the value of the best realistic alternative that must be given up. A decision can look beneficial beside doing nothing but wasteful beside what the same money, position, land, or time could have produced elsewhere.
Typical uses
Hiring, budgeting, purchasing, land use, public spending, career decisions, and any situation in which limited resources have more than one possible use.
ORIGIN
Where the idea came from
- Creator or lineage
- Friedrich von Wieser
- Country
- Austria
- Years
- 1851–1926
- Development
- Developed as “alternative cost” in the late 1800s and early 1900s.
- Catchphrase
- “Compared with what?”
The real cost of a choice is the best realistic alternative given up.
Read the source: German Biography referenceQUESTIONS TO ASK
- What is the best realistic alternative?
- What does this choice prevent us from doing?
- Who values the sacrificed alternative?
You do not need to know this concept’s name to use its reasoning. The name simply helps you recognize, examine, and discuss the pattern.
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