What is opportunity cost?

Opportunity cost is something that we think about everyday but we don't always use that word. It is defined as the benefits lost from the next best alternative choice.This sounds wordy, but in an example it makes sense. The government had £1 million to spend and have 2 choices: they could either hire more nurses or they could hire more builders. If they choose to spend all £1m on nurses, the opportunity cost would be the benefits lost from what the builders could have provided. In day to day life this is like choosing one chocolate bar over another - you lose the benefits of the chocolate bar you don't eat.(This explanation could be furthered for A level students using a diagram and an explanation of marginal gains)

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Answered by Emily A. Economics tutor

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