Opportunity Cost

Opportunity costs, though a simple concept, play a major role in the financial world. An opportunity cost comes when there is a choice to be made, in most situations, a financial choice. Throughout life, the world may present more than one option. When these choices are presented and a decision is made, it can be considered an opportunity cost if the decision based financially. For example, if someone has to buy a car and he has two choices, car A and car B. Car A is $5,000 and has no air conditioning. Car B is more expensive at $10,000, but has the luxury of a/c. If he/she chooses to buy car A because they feel it is a financially smarter decision, that would be their opportunity cost.