Key terms
- Opportunity cost
- Opportunity cost is what a person must give up in order to obtain what they want.
- Sunk cost
- A sunk cost is a cost incurred in the past that cannot now be recovered.
The cost of a thing is the next best thing you did not choose
The cost of one item is the lost opportunity to do or consume something else. In short, opportunity cost is the value of the next best alternative. It is not the sum of everything you turned down, only the best of them, because that is the one you would otherwise have had.