Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative that is not chosen. It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices.
The
opportunity cost is a key concept in economics, and has been described as
expressing "the basic relationship between scarcity and choice".
Example: The difference in return between a chosen investment and one
that is necessarily passed up. Say you invest in a stock and it returns a
paltry 2% over the year. In placing your money in the stock, you gave up the
opportunity of another investment - say, a risk-free government bond yielding
6%. In this situation, your opportunity costs are 4% (6% - 2%).