What is an example of an opportunity cost?
For example, what if you decide to spend your time scrolling through social media instead of completing your homework? The opportunity cost is the better grade you could have gotten. If you choose to turn off your social media and focus on your homework, the opportunity cost might be that you miss out on gossip or a funny video. Clearly, the opportunity cost is much higher for not doing your homework than it is for not catching up on your social media.
This is an example of a cost and benefit analysis. A cost and benefit analysis is a way of making decisions based upon the likely outcomes of several courses of action. As you do this for your decisions, you will want to assess the outcomes of those decisions. Assessing outcomes means to evaluate how each decision turned out. What was the best decision? What did you learn from that decision?
The key to making good decisions is to be aware of all of your choices and the consequences for each. So before making a decision, you should weigh the costs versus benefits.
Some other examples of opportunity costs could include:
1. Choosing to spend money on a vacation instead of saving it for a down payment on a house. The opportunity cost is potentially delaying or foregoing the opportunity to buy a house.
2. Deciding to go to a party with friends instead of studying for a test. The opportunity cost is potentially getting a lower grade on the test.
3. Opting to work overtime instead of spending time with family. The opportunity cost is potentially missing out on quality time and bonding with loved ones.
4. Choosing to invest in stocks instead of putting money into a savings account. The opportunity cost is potentially missing out on guaranteed interest and security of savings.
5. Deciding to pursue a career in art instead of medicine. The opportunity cost is potentially foregoing a higher income and job security in the medical field.
In all these examples, the opportunity cost refers to the benefits or opportunities that are forgone because of the chosen alternative.