What is the definition of opportunity cost?

Opportunity cost is defined as the value of the best alternative that is forgone when a choice is made. It encompasses the benefits you miss out on by not choosing the next best option available. In decision-making, individuals and businesses must often weigh the advantages and disadvantages of different choices, where the opportunity cost represents the trade-off in terms of the benefits that could have been received had the alternative been selected instead.

This concept is crucial in economics because it provides insight into the consequences of decisions, whether they be personal, financial, or professional. It highlights the importance of considering not just the explicit costs involved but also the potential benefits that are sacrificed when choosing one option over another.