FUN - Opportunity Cost Lesson

Opportunity Cost

Opportunity cost is the most desirable alternative given up because of a decision. Typically, your opportunity cost is your second choice. Every other choice is a trade-off. Think of a menu. You can order anything on the menu (so long as the restaurant is not out of it and you have the money!); everything is a tradeoff. Look at the menu below. You want to order a cheeseburger, French fries, and a shake, but you cannot decide between a chocolate shake and a strawberry shake. You choose the chocolate shake. The strawberry shake is your opportunity cost; the vanilla shake is a tradeoff.

Every choice has an opportunity cost. On Friday night, you can choose to go out with friends or study for your Economics test on Monday. If you choose to go out with friends, you cannot study for economics; therefore, studying is your opportunity cost. Typically, the opportunity cost is not measured in dollars; it is the opportunity, not the money, you did not experience. Businesses and governments experience opportunity costs whenever they make decisions as well. If the government wants to solve the problem high unemployment, their actions will lead to higher inflation (rising prices)!

Let’s practice identifying opportunity costs and tradeoffs.

Opportunity Cost Practice

Opportunity Cost Vocabulary Practice

 

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