What is Opportunity Cost?

According to dictionary.com, opportunity cost is “the money of other benefits lost when pursuing a particular course of action instead of a mutually-exclusive alternative.”  What does that mean in laymen’s terms?  Opportunity cost is essentially all the things you pass up on when you chose to spend your money on the item you purchased.

Many people encounter opportunity cost on a daily basis and most don’t even know it.  Think of the last thing you spent your money on.  Take for example, a candy bar.  

Candy Bar Example

When you walk into your local convenience store, you will notice that you have multiple options to choose from.  

For some people, that choice gets difficult because they have a desire for a variety of the options available.  While others the decision is fairly easy because they only like a few different candy bars.  

Nonetheless, in both situations, you would be choosing a candy bar and passing up on all the other options available to you at that point in time.