What is the Meaning of: Opportunity cost | Concept and Definition of: Opportunity cost
The opportunity cost (or cost) is an economic concept that allows to designate the best option unrealized value or the cost of the investment of the resources available at the expense of available alternative investments.
It can be said that the opportunity cost concerns which waives an economic agent when making a decision. The opportunity cost is also the cost of an unrealized investment (for example, calculated from the profitability expected of invested funds).
To be logical in financial terms, an investment gain must be at least equal to the opportunity cost. Otherwise, you lose more because of the elimination that it would win with embodied investment.
The opportunity cost can also be estimated from the profitability provided by an investment and taking into account the accepted risk. This kind of calculations allows to compare the risk of several possible investments.
Macroeconomics considers that the opportunity cost cannot be established only from external factors of investment.
Example of opportunity cost: a man wants to invest its savings. A Bank offered him a 15% interest rate for an investment term, while another entity suggested investing in bonds (debt securities) may report a 12 percent interest rate. He decided to put his money in term; However, the opportunity cost is 12% earnings relative to what would have brought him the obligations.