Opportunity Cost
Friedrich von Wieser · 1914
"The true cost of a choice is the value of the best alternative you gave up to make it."
Every decision is also a rejection of every other option you could have taken. Buying a $5 coffee doesn't just cost $5 — it costs whatever else that $5 (and the time) could have produced. The price tag is never the whole cost; the forgone alternative is.
Wieser formalized this in 1914: because resources (time, money, attention) are scarce, the real cost of any choice is measured against its next-best alternative, not against zero. A project that earns $100,000 looks like a win — until you notice the same capital invested elsewhere would have earned $150,000. Judged against its true alternative, that 'successful' project actually cost $50,000. Comparative advantage follows the same logic: a lawyer who types faster than her assistant should still hire the assistant, because her hour is worth far more doing legal work.
A company proudly reports $100,000 profit from a project. Its capital could have earned $150,000 invested elsewhere. What does opportunity cost say?
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The explanation above is written with AI assistance. These are the originals — go to them to check it.
- Cost and Choice: An Inquiry in Economic TheoryJames M. Buchanan, 1969
- Opportunity CostFarnam Street
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