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** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
Opportunity cost refers to the value of the best alternative that is forgone when making a decision to pursue a particular course of action.
For example, if you choose to spend $10 on a movie ticket, the opportunity cost might be the coffee you could have bought instead with that money.
This concept highlights that every choice involves trade-offs, as resources like time, money, and effort are limited.
Economists use opportunity cost to evaluate the efficiency and rationality of decisions in both personal and business contexts.
Understanding opportunity cost helps individuals and organizations make more informed choices by considering not just the explicit costs, but also the implicit benefits of alternatives.
Take the quiz: What does opportunity cost refer to in economics?