What is an example of opportunity cost?

Opportunity cost refers to the value of the next best alternative that is given up when making a decision. In this context, the chosen answer highlights a clear example of opportunity cost: when an individual decides to spend money on a vacation rather than purchasing a new car. This choice illustrates the concept because the individual must forgo the benefit of acquiring the new car, which may represent transportation needs or other associated advantages.

By spending that same amount of money on a vacation, the individual gains enjoyment, memories, and relaxation, but at the cost of not owning the new car. Here, the vacation becomes the preferred option, but it inherently involves giving up the potential utility and value that the car would have provided. Thus, this scenario vividly portrays opportunity cost as it directly compares two competing desires—vacation and car—showing the trade-off involved in the decision-making process.

This concept can be similarly applied to the other choices, where each alternative also involves trade-offs. However, the chosen answer most clearly exemplifies the principle of opportunity cost as it pertains to a significant financial decision with palpable alternatives.