Navigation
Introduction to opportunity cost and why we can't have everything we want.
Imagine you have exactly one dollar. You see a shiny gold sticker and a delicious chocolate bar, both costing one dollar. If you buy the sticker, what happens to the chocolate bar?
Have you ever wanted two things at once but could only pick one? This happens because of scarcity. Scarcity means there isn't enough of something (like money or time) for everyone to have everything they want. Because we can't have it all, we have to make choices. Every time you say 'yes' to one thing, you are accidentally saying 'no' to something else. In economics, we call this a trade-off.
Quick Check
If you have 1 hour of free time and you spend it all playing soccer, can you spend that same hour drawing a picture?
Answer
No, because your time is scarce and you chose to use it for soccer.
When you make a choice, the item or activity you didn't pick is very important. Economists call the 'next best thing' you gave up the opportunity cost. It is the 'cost' of the 'opportunity' you missed out on. For example, if you choose to eat an apple instead of an orange, the orange is your opportunity cost. It isn't about money; it's about what you give up to get what you want.
1. You have 1.00. 3. A juice box costs $1.00. 4. You choose the popcorn. 5. Since you cannot buy both, the juice box is your opportunity cost.
Quick Check
You have to choose between going to a birthday party or going to a movie. You choose the party. What is your opportunity cost?
Answer
The movie is the opportunity cost because that is what you gave up.
Scenario: You have a budget of . 1. You want a robot toy that costs . 2. You also want a puzzle that costs . 3. Check the math: . 4. Since , you cannot have both. 5. If you choose the robot, your opportunity cost is the puzzle. 6. Pro of Robot: It moves and makes noise. 7. Con of Robot: It is expensive and leaves you with only dollars.
What is 'opportunity cost'?
If you have 8, how much money do you have left?
True or False: If you choose to save your money today, your opportunity cost is the toy you could have bought today.
Review Tomorrow
Tomorrow morning, try to remember: What was the 'opportunity cost' of the breakfast you chose to eat today?
Practice Activity
The next time you are at the grocery store, find two items that cost the same amount. If you could only pick one, identify which one would be your 'opportunity cost'.