Opportunity cost is the value of the next best alternative that must be given up in order to pursue a chosen action, and it is one of the most fundamental ideas in economics for evaluating any decision under scarcity. Rather than measuring cost only in money actually spent, an opportunity cost analysis also counts the benefit of whatever alternative use of time, money or resources was foregone. The concept was formalized within the Austrian school by the economist Friedrich von Wieser in the late nineteenth century, as part of the broader Austrian argument that economic value reflects subjective individual judgment about alternatives rather than any objective measure of cost, and it remains central to how economists across schools of thought reason about tradeoffs.
Facts
Proposed ByWieser's own conceptual account of forgone alternatives runs back through his 1876 seminar paper and his 1889 Der naturliche Wert (Natural Value); Wikipedia dates his coining of the term itself, in these words, to his later 1914 Theorie der gesellschaftlichen Wirtschaft (Theory of Social Economy). Origin YearYear the term itself was coined, per Wikipedia's biography of Wieser (Theorie der gesellschaftlichen Wirtschaft); Wieser's own earlier conceptual work on the idea dates to the 1870s-1880s. SignificanceOpportunity cost is the organizing idea linking scarcity to choice: evaluating the best forgone alternative is what makes a resource allocation decision economically rational rather than arbitrary, and the idea extends beyond money to lost time and other forgone benefits. 3 Classification
Concept Form Connections
Associated With School
The concept was formalized within the Austrian school by the economist Friedrich von Wieser in the late nineteenth century.
Source The New Palgrave Dictionary of Economics
Source Principles of EconomicsAlfred Marshall
Sources
1. Opportunity cost (Wikipedia)
lead paragraph, sentence beginning: In microeconomic theory, the opportunity cost of a choice is
In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives.
Wikipedia, Opportunity cost, lead section
As a representation of the relationship between scarcity and choice, the objective of opportunity cost is to ensure efficient use of scarce resources.
View the Source2. Encyclopaedia Britannica
3. Wikipedia
Wikimedia FoundationBiography sectionQuote, Biography section
It was here that he first coined the term 'opportunity cost'.
The New Palgrave Dictionary of Economics
Palgrave MacmillanAssociated With School: Austrian School
Principles of Economics
Alfred Marshall, Macmillan, 1890Associated With School: Neoclassical Economics
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