Opportunity cost is the cost of the highest valued that was forgone. It indicates the benefits that could have been obtained by choosing the next best alternative.

It is the result of a relationship between scarcity and choice.

For instance, a government can either choose between building a school or constructing a road. If the government chooses the road then the benefits that could have been obtained by the school- eg. increased employment and productivity in the future, would have to be given up.

 

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