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Resources are scarce. That means every time we make a choice to use a resource one way, we've given up the opportunity to utilize it another way. That's easy to see in our own lives, where we must constantly decide what to do with our limited time and income. Should we go to a movie or study for next week's test? Should we buy a car or repair the roof? Should we get a degree or begin work right after completing our diploma programme? In each of these cases, making a choice in effect costs us the opportunity to do something else. The alternative forgone is called the opportunity cost.
Decisions have opportunity costs because choosing one thing in a world of scarcity means giving up something else. The opportunity cost is the value of the good or service forgone.
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