What does the term "opportunity cost" refer to?

The term "opportunity cost" refers specifically to the value of the next best alternative foregone when a choice is made. This concept is central to economics as it emphasizes that every decision has trade-offs. When you allocate your resources—whether time, money, or effort—toward a particular option, there is usually another option you must give up. The significance of opportunity cost lies in the realization that the true cost of any decision includes not only the tangible expenses involved but also the benefits you miss out on by not choosing an alternative. This understanding helps individuals and businesses make more informed decisions by recognizing all potential costs associated with their choices.