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Opportunity Cost as True Economic Cost

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Opportunity Cost as True Economic Cost

One fundamental principle of economics is that the true cost of something, whether that something is a physical item, a potential life choice, etc., is what one has to give up in order to get it. In most cases, this cost includes not only involves explicit costs but also implicit costs. Explicit costs are, not surprisingly, costs that involve explicit monetary outlays such as writing a check, handing over cash, or using a credit card. Implicit costs, on the other hand, are costs that involve things such as forgone profit, the (non-monetary) cost of one's time, or the value of other forgone opportunities.

Opportunity cost represents all-inclusive economic cost, which is the sum of explicit and implicit cost. In most cases, economists are referring to this all-inclusive opportunity cost when they use the word "cost," and this is important to keep in mind in order for a lot of the conclusions that economists draw about profit to make intuitive sense.

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