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Opportunity Cost Sample Problem

Every society faces trade-offs because we live in a world of scarcity.  Suppose Stacy has the opportunity to go to school next year full-time to become a Nurse Practitioner.  Stacy currently works as a nurse and earns $60,000 per year at her hospital.  Stacy has been offered another job to work as a home healthcare nurse that would pay $70,000 per year.  If Stacy goes to school to become a Nurse Practitioner for one year, she would not have time to work.  What is the opportunity cost of Stacy going to Nurse Practitioner school?
To answer this question, we need to start by making sure we understand the underlined economic terms above.
Let’s start with trade-offs, which occur due to scarcity.  Scarcity is one of the cornerstone concepts of economics.  Scarcity describes a situation in which unlimited wants exceed the limited resources available to fulfill those wants.  A trade-off is the idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Opportunity cost is the highest-valued alternative that must be given up to engage in an activity.  So, in the case of this example, the opportunity cost of Stacy attending Nurse Practitioner school is the highest-valued alternative that she has to give up in order to attend school.  The highest-valued alternative that Stacy would have to give up to attend school is working as a home healthcare nurse and earning $70,000.  Thus, the opportunity cost of Stacy going to Nurse Practitioner school is $70,000.
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