What Is Opportunity Cost And What Does It Mean For You?

Opportunity cost is largely defined as a decision you make that alters your personal landscape in the years ahead. Opportunity costs can impact various – and critical – areas of your daily life, including money, career, family and home, and other lifestyle elements. In general, it means needing to choose one option over the other, be it money, lifestyle or time choices – and coping with the effects.

If you are a business owner, opportunity cost will enter into play frequently. You will have to spend a lot of time weighing whether or not the inevitable consequences of confirmed decision are outweighed by increases in size that decision provides. And whether business or personal, opportunity cost will often be a tangible physique.

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To gain a different perspective on opportunity cost, consider this question: What scenarios can occur if I opt for just one route over another? Also, what end result am I departing on the table and how is that my opportunity cost? Economists breakdown opportunity costs in two ways – via “explicit” and “implicit” opportunity costs. An explicit cost is, as you would imply, a cost that is shown in your accounting information explicitly. It’s a price that will be reflected somewhere in the income statement.

3,000. The cash might have been used to place more advertising in your community, to upgrade your company’s website, or as a deposit on a new truck for your organization. What end result results from your decision to buy those lawn mowers over other business options is the manifestation of your opportunity cost.

In both examples, the landscaping design company owner and the small business entrepreneur are leveraging opportunity costs in positive ways – they’re making choices completely cognizant that the decisions they’re making do have real-world outcomes. Yet the considerable research, study, and due diligence they bring with their decision-making processes increase the likelihood that they are making the right kind of opportunity cost decisions. The types of opportunity costs in business are self-explanatory fairly.

Buying new equipment for your factory has an obvious explicit cost. Your small business owner declining an annual salary is an obvious implicit cost. But what are a few of the ways opportunity cost can pop up in and impact your own life? Opportunity costs start fairly early in life. What if you decide to go to college, or opt to learn a trade? Or, if you go to college, which major do you choose? And if you choose to learn a trade, what happens if you choose to be an electrician or if you opt to open a landscaping design company?

Opportunity costs also impact your individual pleasure. Ask anyone who’s have you been divorced what their life would be if they didn’t get wedded, or were wedded to another person? Or, imagine if you decided to spread buying your dream house because the timing wasn’t right, and discovered it increased in value 2 yrs later significantly?