If that happens, we are forced to think about opportunity costs.

This is because when we look at the new opportunity, 

we compare it with our current situation and think about what is at stake if we would go for it.

This often happens without us being able to see the full picture.

Economists define opportunity cost as the benefit we forgo as we trade off one alternative for another, hoping we make the best choice.

Although they are often less obvious and sometimes speculative, opportunity costs can be huge; therefore, learning about them makes sense.

Imagine that we are trying to calculate the true cost of going to college.

One factor can be tuition, which, in our case, is $10,000.

Since that's our only cost, you might conclude that the cost of college is $10,000 a year.

But to economists, that's not quite right.

Because we have to add the money we could've earned by working instead of attending college.

Let's say that by working full-time in a local restaurant, you can earn $20,000 a year.

The true costs of going to college are, therefore, $10,000 tuition plus $20,000 in opportunity costs.

By studying for a degree, we trade off $30,000 a year.

Although that's only half the story because it also goes the other way around.

Assuming we go to college for 4 years, we trade off $120,000 for an education that leaves us with empty pockets, many ideas, and a degree.

However, once we are better educated, we might be able to make $40,000 as a manager instead of the $20,000 in service.

In such a case, not going to college ends up being much more expensive.

Do you understand the concept?

Show us!

Calculate the opportunity costs of a high school student who drops the idea of earning a degree in medicine and, instead, chooses to help in the family business.

The cost for tuition and living is $2,000 a month.

It takes a total of 6 years to finish university.

After obtaining her degree, she works in the field of medicine for 34 years, earning $10,000 a month and spending $3,000 on monthly living expenses.

If she is entering the family business, she earns $3,500 right away for the next 40 years with zero living expenses.

What's, financially, the better choice?

Post your calculations in the comments below.

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