Western Governors University (WGU) ECON2000 D089 Principles of Economics Practice Exam

Opportunity cost is the economic concept that refers to the value of the next best alternative that must be forgone when a choice is made. It highlights the inherent trade-offs in decision-making, as resources are limited. When an individual or entity decides to allocate resources—such as time, money, or effort—toward one option, the opportunity cost represents the benefits they miss out on from not choosing the alternative.

For instance, if a student spends time studying for an economics exam instead of working a part-time job, the opportunity cost would be the wages they could have earned during that time. This concept is crucial in economics because it encourages individuals and businesses to consider the potential benefits of alternatives when making choices, leading to more informed and efficient decision-making. Understanding opportunity cost helps to clarify the implications of every economic choice, emphasizing that every selection carries a cost in the form of alternative benefits that are sacrificed.