What is Opportunity Cost?

Because goods and services are scarce, or limited, trade-offs must be made. A trade-off is loosely defined as the sacrifice of one thing in exchange for something else that is more desired. This “one thing” that is sacrificed is called the opportunity cost. Every decision has a cost. When you choose to spend time at the park, you are sacrificing the opportunity of spending time at the beach. When you purchase a new book with limited money, you sacrifice the opportunity of purchasing a new pencil pouch. The time at the beach and the pencil pouch, in these scenarios, would be your opportunity cost. Doing one action invalidates the possibility of doing something else, and that something else is the opportunity cost of doing the action.