Opportunity Costs

Opportunity cost refers to the potential benefits you miss out on when choosing one option over another. In cost-benefit analysis, it helps evaluate decisions by considering what you give up in order to pursue a particular choice. For example, if you spend time and money on a vacation instead of saving for a home, the opportunity cost is the enjoyment and security you forgo by not choosing the other option. Understanding opportunity costs allows for better-informed decisions by highlighting the trade-offs involved in every choice.