Difference Between Opportunity Cost and Trade Off

Main Difference – Opportunity Cost vs Trade Off

Opportunity cost and trade off are two different concepts in economics, but they cannot be separated from each other since they are two sides of the same coin. These two concepts are concerned with the scarcity and the choice. Trade-off is sacrificing a certain option to choose another opportunity whereas opportunity cost is the cost that has to incur as a result of selecting the so-called opportunity. Thus, the opportunity cost is always the result of tradeoff. This is the main difference between Opportunity Cost and Trade Off.

This article explains,

1. What is Opportunity Cost?

2. What is Trade Off?

3. Difference Between Opportunity Cost and Trade Off

Difference Between Opportunity Cost and Trade Off - Comparison Summary

What is Opportunity Cost

Opportunity cost is an economic concept which used to discuss choice. It always talks about the highest value of the next opportunity which is given up by the economy to gain the highest value which has been selected. That selection can be between two or more choices. For example “X” is waiting to enroll in the university and at the same time he gets a job opportunity at a company close to his house with a salary $ 50,000 per annum. But, X selects a university far away from his home, and he has to spend $ 40,000 per annum for his studies. By choosing this option, he will lose the earning of $ 50,000. That is the opportunity cost of study. Basically, it is the thing you miss when you are reaching for another option.

Opportunity cost can be calculated using different types of measurement tools such as consumer choice, competitive advantage, time management, cost of capital, career choice, and production possibilities.

Main Difference - Opportunity Cost vs Trade Off

What is Trade Off

Trade off is the concept that talks about the situation which sacrificed to gain another situation. When there are multiple opportunities with limited resources, we have to make comparisons among them to select the best. We always select the opportunity which gives the highest benefits and rest of the options will be sacrificed. Trade off can be described as a technique of measurement which measures the most preferred possible alternative. When we make trade off, the thing that we do not choose is called the opportunity cost. Trade off can produce the same results but factors like level of risk, different paths, comfort, can result in different level of complexity and social costs.

Example:  You will miss the chance to watch a movie you like if you watch OlympicDifference Between Opportunity Cost and Trade Off

Similarities Between Opportunity Cost and Trade off

Both concepts involve selecting an opportunity among different alternatives and sacrificing one or more alternatives as a result. The choice is the common term in both concepts.

Difference Between Opportunity Cost and Trade Off

Definition 

Opportunity Cost: Opportunity cost refers to what a person could have done with what was sacrificed.

Trade Off: A trade-off describes what is sacrificed to get something else.

Opportunity 

Opportunity Cost: Opportunity cost refers the next valuable opportunity.

Trade Off: Trade off is a concept that refers to two opportunities or more with choice.

Opportunity Cost vs Trade Off – Conclusion

Trade off and opportunity cost are important and useful concepts in economics. They can be used in many business and real life situations. Trade off is sacrificing certain option to get another opportunity whereas opportunity cost is the cost that has to incur as a result of selecting the so-called opportunity. Opportunity cost is the result of trade off.

Image Courtesy:

“Three options – three choices scheme” By Jagbirlehl – Own work via

“Ppf2 small” – original uploader was Mydogategodshat at English Wikipedia – Transferred from en.wikipedia to Commons by Jarry1250 using Commons Helper.  via  

About the Author: G.Perera


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