Risk vs Reward
An investor decides that the market is overvalued and goes completely to cash. This dramatically reduces their risk at the opportunity cost of the potential returns of being invested.Education vs Work
A student considers the cost of a four year university education by calculating total tuition and expenses for the period. They may also include the opportunity cost of missing four years of salary in their calculations.Product vs Product
A factory can produce 12,000 jars of peanut butter a day. The opportunity cost of every jar of smooth peanut butter is one jar of chunky peanut butter.Service vs Service
A small airline has 28 aircraft. Their opportunity cost of offering a Tokyo to Hong Kong flight is the ability to offer a Tokyo to Taiwan flight.Salary vs Quality of Life
An IT worker is offered a new job with a higher salary in a city with a lower quality of life. The opportunity cost of the higher salary is a lower quality of life such as reduced air quality.Cost vs Quality
A manufacturer of headphones is facing stiff competition from low cost products with similar designs to their own. They decide to increase quality of their build to make the competition look and feel comparatively cheap. The opportunity cost of the new product design is increased cost and inability to compete on price.Abilities vs Abilities
The opportunity cost of after school violin lessons at a particular school is the ability to join other after school activities such as baseball or the chess club.Purchase vs Purchase
You could spend $1200 on a more reliable bicycle or a newer model of smart phone.Friends vs Family
You could skip a family trip to spend more time with your friends. The opportunity cost of this decision would be the missed time with your family.Work vs Family
Prioritizing work over family to secure financial rewards or prioritizing family over work which may create financial risks.Freedom vs Belonging
Unconstrained freedom such as traveling alone may have costs related to taking on responsibility whereby you become someone that others rely upon.Notes
People may avoid the idea of opportunity cost with the unrealistic assertion that they can always have things both ways. In practice, time and resources are constrained and choices do cause you to miss out on paths not chosen.| Overview: Opportunity Cost | ||
Type | ||
Definition | The value of the best alternative to a decision. | |
Related Concepts | ||
