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What is opportunity cost? Opportunity cost refers to the value a person could have received but passed up in pursuit of another option. This is one of the most

What is opportunity cost?

Opportunity cost refers to the value a person could have received but passed up in pursuit of another option.

This is one of the most fundamental concepts in economics and understanding opportunity cost is crucial to decision-making.

For example, when you dress up like a cow for a free chicken sandwich or wait in a long line to get a $1 sub for a restaurant promotion, you might actually not be getting that great of a deal. That “free” sandwich? Well, even if your cow costume was made with stuff you already had, you still gave up the opportunity to do something else with your time. Same goes for the $1 sandwich. All that time you spent in line cost you the opportunity to do something else – like working, studying, or even playing video games.

Opportunity cost is certainly a useful concept to our everyday lives. But economists also use this tool to determine the possible benefits of trade, which we’ll explain in the video.

Want to learn more about the role of specialization in trade? Check out our Principles of Economics: Microeconomics section on Trade.

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