Opportunity Cost

Opportunity cost is a way of thinking about what you give up when you make a choice. Imagine you’ve got two options: you can either spend your Saturday working extra hours to get a bigger paycheck or hang out with friends and relax. If you choose to work, the opportunity cost is the fun and relaxation you miss out on with your friends. But if you decide to see your friends, the opportunity cost is the money you could have earned.

It’s all about considering the next best alternative you’re giving up when you make a decision. So, whenever you’re choosing between different options, opportunity cost helps you think about what you're sacrificing in order to make your choice. It’s a useful concept for making smarter decisions by weighing the benefits of one option against the benefits of another.