What is the term for the value of the best alternative that is forgone when making a decision?

The term that describes the value of the best alternative that is forgone when making a decision is opportunity cost. This concept is fundamental in economics, as it highlights the trade-offs involved in every decision. When individuals or businesses choose one option over another, they not only incur costs associated with the chosen option but also give up the potential benefits they could have received from the next best alternative.

For instance, if a student decides to spend time studying for an exam instead of going out with friends, the opportunity cost would be the enjoyment and experiences they miss by not socializing. Understanding opportunity cost helps individuals and businesses make more informed choices by considering not only the direct costs of their decisions but also what they sacrifice in terms of other valuable options. This decision-making process underscores the importance of evaluating the potential benefits of all alternatives to optimize choices.