What Is Opportunity Cost And EXACTLY WHAT DOES It Mean For You?

Opportunity cost is largely defined as a decision you make that alters your personal landscape going forward. Opportunity costs can impact various – and critical – areas of your daily life, including money, profession, family and home, and other lifestyle elements. Generally, it means having to choose one option over the other, be it money, time or lifestyle options – and living with the implications.

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

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To gain a different perspective on opportunity cost, consider this question: What situations can occur easily opt for just one path over another? Also, what final result am I leaving up for grabs and how is that my opportunity cost? Economists break down opportunity costs in two ways – via “explicit” and “implicit” opportunity costs. An explicit cost is, as one would imply, a price that is shown in your accounting information explicitly. It’s a price that’ll be reflected somewhere in the income statement.

3,000. The money could have been used to put more advertising in your community, to update your company’s website, or as a down payment on a fresh truck for your business. What outcome results from your decision to buy those yard mowers over other business options is the manifestation of your opportunity cost.

In both examples, the landscaping 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 research, study, and due diligence they bring to their decision-making processes raise the likelihood that they’re making the right kind of opportunity cost decisions. The examples of opportunity costs running a business are self-explanatory fairly.

Buying new machinery for your factory has a clear explicit cost. A small business owner declining an annual salary is an obvious implicit cost. But what are some of the true ways opportunity cost can pop-up in and impact your own life? Opportunity costs start fairly early in life. What if you choose 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 personal pleasure. Ask anyone who’s have you been divorced what their life would be if they didn’t get married, or were married to someone else? Or, what if you made a decision to spread buying your dream house because the timing wasn’t right, and learned it increased in value two years later significantly?