What Does Opportunity Cost Mean?

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Go to college or tour the world? Buy a car or save for retirement? Trade jobs or stay put and hope for advancement? Each of these things is an opportunity, and the cost for choosing one is the time and ability to do the other. Opportunity cost is an economics term. Your opportunity cost for one choice is all the other choices that you didn't make.

Significance

Opportunity cost is especially significant when choosing to do something which takes a large investment of time, money, or both. Joining the military is a good example of this type of opportunity cost. Committing four to eight years of your life to the military means the loss of all those years to start a family, or build a business. Such things as the G.I. bill, life experience credits and College Level Exam Placement testing help, though, allowing service members to obtain a college degree while on active duty.

Even something as mundane as attending a concert has an opportunity cost. All the time and effort it took to obtain the funds to buy the ticket were not available for anything else, such as studying for final exams or attending a high school football game. "...if you choose not to decide, you still have made a choice," according to the band Rush, in their song, "Free Will." The price of doing nothing is everything else that you could have done.

Effects

The person who chooses to open a business or go straight to work right out of high school has four to eight years of earning potential that is lost to the student who chooses to go to college. His opportunity cost is the higher income and more frequent promotions that the college student will eventually take for granted. Wise investments can narrow that gap, but the college student should ultimately come out ahead over time.

The woman who chooses to have children in her twenties pays for that opportunity with her income earning potential and the height she might have reached in her career. On the flip side, the woman who waits to have children later in life, after pursuing a college degree and establishing herself in her field, pays with the added anxiety of the elevated risk of possible birth defects or infertility due to early menopause.

Warning

Many people find themselves unable or unwilling to close doors in order to take advantage of just one of their many possibilities. This paralysis prevents making a decision, as all paths are seen as equally good or equally bad. A life which attempts nothing is worth nothing.

Benefits

Choosing a path, setting goals, and achieving something rather than just existing all provide a feeling of well being, intellectual stimulation and emotional satisfaction. A life filled with leadership in school activities, community service, travel, and adventure provides fodder for conversations when attempting to make new friends, adds to resumes when seeking work, and provides personal satisfaction. Those who do something useful and productive with their time are rewarded with the respect and admiration of neighbors, friends and colleagues.

Potential

If you make a choice and find that the opportunity cost is too high, simply make another choice. Make a list of all the things you want to achieve and places you want to go in your lifetime. Assign a number to each of those things, and put them in order according to what will bring you the greatest sense of satisfaction. Next, take each item on that list and write down all the steps that will be necessary to achieve or do them. Treat the rest of your life like a game of Limbo: begin with the first step of the first item on the list. Once you have done it, raise the bar and go to the next step. Continue until you have done everything, then make a new list. All you have to lose is everything else you want to do.

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