What term describes the benefit missed when an investor, individual, or business chooses one alternative over another?

• A. Opportunity costs
• B. Costs
• C. Sunk costs
• D. Revenues

Answer: (A)

Whenever you choose one option over another, you’re giving up something valuable—the next best alternative. The benefit you miss by not taking that alternative is called the opportunity cost. This idea helps explain why decisions are about trade-offs under limited resources: you weigh what you gain against what you forgo.

For example, if you spend time on a hobby instead of studying, the opportunity cost is the extra knowledge or potential grade you could have earned. For an investor, buying one stock means the opportunity cost is the return you might have gotten from a different investment.

This concept is different from costs in general, which are the resources you actually spend; it’s also different from sunk costs, which are costs already incurred and should not affect current choices; and from revenues, which are money you earn from selling goods or services.