Principles of Economics – Opportunity Costs

Vocabulary flashcards covering the key cost concepts from the lecture on opportunity costs.

Scarcity

The fundamental economic condition of limited resources and unlimited wants, which forces individuals and societies to make choices.

Trade-off

The act of giving up one benefit or activity in order to obtain another, resulting directly from scarcity.

Opportunity Cost

The value of the next best alternative that must be forgone when a choice is made.

Next Best Alternative

The single most valuable option sacrificed when a decision is taken; used to measure opportunity cost.

Explicit Cost

A cost that requires a direct monetary payment (e.g., paying $6 for a cup of coffee or $16,000 in tuition fees).

Implicit Cost

A non-monetary cost representing the value of resources sacrificed (e.g., the wages you forgo by attending class or the sleep you give up for an early lecture).

Economic (Total) Cost

The full opportunity cost of a decision, calculated as Explicit Cost + Implicit Cost.

Sunk Cost

A cost that has already been incurred and cannot be recovered (e.g., $633 million spent on a cancelled power plant) and therefore should not influence current choices.