Which statement best defines opportunity cost?

• A. A tax on luxury goods
• B. The highest value (or next best) alternative forgone
• C. The total value of all goods produced
• D. The price of a good in a market

Answer: (B)

Opportunity cost is the value of the next best alternative forgone when you make a choice. It captures the idea that resources are scarce, so choosing one option means giving up something else of value. The best description here is that it’s the highest-valued alternative you could have chosen but didn’t.

For example, if you spend time and money going to a concert, the opportunity cost is the next best use of that time and money—like working a shift or saving for a future goal. If you study economics instead of working, the opportunity cost is the wages you could have earned.

Other statements describe different ideas (a tax is a policy tool, GDP is total output, price is what you pay for a good) and don’t capture the notion of forgone alternatives.