Define opportunity cost.

Opportunity cost refers to the value of the next best alternative that is forgone when a choice is made. This concept emphasizes that every decision involves trade-offs; when resources are used for one purpose, they cannot be used for another. Hence, opportunity cost is not simply about monetary expenditure but also includes any benefits or values associated with the alternative that is not pursued.

For example, if a student chooses to spend time studying for an exam instead of going out with friends, the opportunity cost is the enjoyment and experiences that they miss out on by not going out. Understanding opportunity cost helps individuals and businesses make more informed decisions by considering what they are giving up when choosing one option over another.