Opportunity Costs

According to Investopedia, opportunity cost is, "The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action."

The difference in return between a chosen investment and one that is necessarily passed up. Say you invest in a stock and it returns a paltry 2% over the year. In placing your money in the stock, you gave up the opportunity of another investment - say, a risk-free government bond yielding 6%. In this situation, your opportunity costs are 4% (6%-2%). For example if you get a college degree, while you are getting the degree you are giving up the next alternative which for example would be work. So you would say, the opportunity cost of going to college is not working. Another example would be the choice between buying a car and going on vacation. The opportunity cost of buying my car is that I am not going on vacation.