Appetizer

Opportunity cost is the cost of giving up one thing in favor of another. More precisely, economists define opportunity cost as the highest valued alternative given up to pursue any given action.

Everything you do has an opportunity cost. If you decide to buy 200 lava lamps at $10 each, you give up the opportunity to use that money to buy a plasma TV or 25 shares of Microsoft stock. If you decide to go to college, you give up the opportunity to use that time to make money working. If you build an apartment building, you give up the opportunity to use that land for a shopping mall. Lost opportunities can be quite costly. Valuing opportunity costs plays a vital role in ensuring that scarce resources - like money, time and land - are used efficiently.