As a teenager, I remember spending lazy African mornings sitting in a small airy classroom with 30 other students, staring at the teacher saying something or the other about Economics. She was rather energetic for such a non-energetic theoretical subject and her relentless interest in teaching us economics was commendable.

Despite all this, when I first learned about the term, 'opportunity cost' in high school, I simply rote learned the definition, €it is the cost of giving up the next best alternative', which sounded pretty technical back then. Now when I reflect upon it, this is one of the easiest concepts in endless field of economics.

The beauty of this term is that it applies to everything that requires making a choice in life:

- Buying a car or a bike,
- Buying a blue bike or a black one,
- Ordering chicken or beef at a restaurant,
- Going camping or swimming,€¦

And the list goes on, because we make hundreds of choices each day (without really appreciating the liberty associated with it).
How does the idea of opportunity cost come up?

When you evaluate two or three different options related to a decision you have to make, you try to weigh their costs and benefits against one another to figure out the right choice.

It's a hot day and you want something refreshing. The corner shop sells ice cream and lemonade - which will you buy? Your brain slowly wakes up and makes a few calculations. You think, 'Ice cream tastes great but has more calories. My bulging tummy doesn't make it any easier to fit into my new jeans. On the other hand, lemonade is healthy and hydrating, but it doesn't taste as good as ice cream, especially chocolate ice cream."

After two hours of critical thinking, you choose lemonade.

When you're done with the decision, you might regret not choosing the €other' option (ice cream) because of the benefits (taste, texture, etc.) you failed to receive.

You see a small girl nearby eating the very ice cream cone you considered buying. Now you think about the ice cold sensation and oh-so-sweet taste you missed out on and seriously consider stealing the girl's treat...

That, my dear, is your opportunity cost for buying lemonade.

Why do I say, €your opportunity cost'?

Because this cost is different for everyone because it really depends on the person's own preferences. If I were feeling hot, I might choose between lemonade and milkshake, because ice cream just doesn't appeal to me. My €next best alternative' is milkshake, while another person's may be fruit juice.

Kind of hectic determining the opportunity cost for everything, isn't it?

Yes. It'll drive you nuts if you analyzed everything this way because as I said before, you make hundreds of choices every day. That's why this term is mostly used in business situations where the opportunity cost is more drastic and measurable in terms of money or time. Often, business decisions require choosing between:

- Different factory building locations (the opportunity cost can involve money, time, locational advantages, etc.),
- Different product enhancements (the next best alternative could be an additional feature that is incompatible with your chosen enhancement),
- Expanding in various markets across the country or world (each country has a unique benefit to offer, which you will miss out on).

That's not to say you can't apply this idea on a smaller, personal scale.