Opportunity Cost examples

Frank is overweight and decides to workout every day and go on a diet

For Frank, the opportunity costs are the alternative uses of time spent (now) working out and the forgone pleasure of consuming foods that are not part of the diet. Presumably the present sacrifice yields a future benefit of better health and more enjoyment of leisure activities (since he will be in better physical condition).

Jim is in a hurry. He runs a red light on the way to work.

Jim may get to work faster (current benefit), but at the risk of an accident or ticket, which could be costly (in the near/distant future). Included in the potential cost of this behavior are the monetary, criminal, or psychological penalties (remorse or direct concern about the welfare of others) that Jim will pay if others are harmed.

After a stressful year of highschool, Sharice decides to take the summer off instead of working before going to college

Sherice sacrifices the value of goods and services that could have been purchased in the future with the income from work in order to obtain more leisure today. To the extent that this income needs to be replaced (i.e., she will have to work more in the future) to finance her education, Sherice future consumption (of leisure) for present consumption (of leisure). On the other hand, if the time off improves Sherice's state of mind, she may be a more successful student, which may be pleasant in its own right, and may also provide monetary rewards (better job, better graduate school) in the future.

Opportunity Cost

The highest valued, next best alternative that must be sacrificed to obtain an item or satisfy a want.

Mei is deligent about taking her car in for maintenance even though it takes 2 hours of her time and costs $100 four times each year.

Time and money spent today on maintenance is an investment. By reducing resources available for consumption today, more resources will be available for Mei in the future (since repair costs will be lower and breakdowns/trips to the mechanic's shop less frequent).

What is opportunity cost of investing in capital?

current consumption