Economics starts with a simple truth: resources are limited, but our wants are unlimited. This is called scarcity. Because of scarcity, we have to make choices, and every choice involves a cost—the value of what you give up. This is known as opportunity cost.
Whenever you choose one thing, you’re giving up something else. Economists use this idea to help explain how individuals, businesses, and even governments make decisions.
Whether you're deciding how to spend your allowance, what movie to watch, or how to use your free time, scarcity and opportunity cost are always involved.
Even countries face scarcity. For example, if a government spends money on defense, that money can't be used for education or healthcare. The opportunity cost is the value of those foregone services.
Scarcity forces us to make decisions, and opportunity cost is what we give up when we choose one thing over another.
Buying a video game instead of saving money for a concert means the concert is your opportunity cost.
Using land to grow corn rather than wheat means the wheat is the opportunity cost.
Scarcity means limited resources, so every choice has a cost—opportunity cost is what you give up.