Definition
- Opportunity cost
- Opportunity cost is what a person must give up in order to obtain what they want.
- Not to be confused with: Sunk cost
- A sunk cost is a cost incurred in the past that cannot now be recovered.
Example
Can you think of a choice where the option that is cheaper in cash turns out to be the dearer one?
A student skips a lecture to take an extra shift. The shift pays £40, so the lecture looks like the free option — but what it cost was the learning missed, and if that learning is worth more than £40 later, the shift was the expensive choice.
Test yourself
What is the difference between opportunity cost and sunk cost?
Opportunity cost is what a choice still to be made gives up; a sunk cost is already gone whatever you choose.