How is opportunity cost best defined?

Opportunity cost is defined as the value of the next best alternative foregone when making a choice. This concept emphasizes the idea that choosing one option involves giving up the benefits that would have been gained from the alternative option that was not chosen.

For example, if you decide to spend money on a new phone instead of saving for a vacation, the opportunity cost is the enjoyment and experiences you would have gained from going on that vacation.

This definition highlights the importance of considering the potential benefits of alternatives when making economic decisions, as it provides a clearer picture of the true cost of any choice. By understanding opportunity cost, individuals and businesses can make more informed decisions that reflect not just the outlay of money but also the lost potential of other opportunities.