How are trade-offs and opportunity costs related, In every economic action, choices must be made so that the scarce resources can be best utilized. In order to make a choice, one or more options have to be discarded.This is explained by a variety of terms in economics, such as opportunity cost and trade-off..

how are trade-offs and opportunity costs related

The opportunity cost is the cost of a missed opportunity, and hence, a comparison is made between a rejected and an accepted option.

For example, a student who wants to enroll at a far-off university finds a job opportunity at a company near his current location. Instead, the student chooses to attend university and forego the job. When a person chooses a university education, he or she forgoes the possibility of a high-paying job. Therefore, the cost of attending university is the job.

Opportunity costs are determined by a person’s money, needs, and wants, hence a certain course of action can be different for different individuals. Therefore, a particular course of action will have a different value for different individuals.

Various factors contribute to opportunity cost, including competitive advantage, cost of capital, consumer choice, time management, production possibilities, and career choice.

The most common formula for calculating opportunity cost is to subtract the cost of the preferred option from the cost of the most beneficial option.

What is a Trade-off ?

To obtain a product, experience, or service we desire, we have to give up options. It is a deal that is a compromise, where in order to obtain one aspect one has to forfeit another aspect. Loss is a part of the process when making a choice.

A trade-off cannot be calculated specifically, so determining the trade-off in a situation is not always easy. When a person is in a dilemma, ranking the alternatives will help in making the decision of what to trade off.

The person who is torn between staying home for the night, seeing a friend or seeing their parents faces a trade-off. Staying in for the night and seeing the friend become the trade-off if the person decides to see the parents. The trade-offs, however, differ depending on the person.

Similarities Between Opportunity Cost and Trade Off

  • In both concepts, one must choose from a variety of options
  • and each choice implies giving up another option

Differences Between Opportunity Cost and Trade Off

Definition of Opportunity Cost and Trade off

Opportunity cost is the cost of choosing one course of action over another while a trade-off is the course of action foregone in order to take the preferred course of action.

Nature of Opportunity Cost and Trade off

In an opportunity cost, one opts for a better alternative, while in a trade-off, one sacrifices everything in order to obtain what one wants.


Opportunity cost can be calculated by subtracting the return of the preferred option from the return of the most beneficial option, but a trade-off does not have a formula for calculation.

Affiliation to other preferences

The opportunity cost does not take into account losses incurred. However, a trade-off is not directly related to what was sacrificed.

Benefit of Opportunity Cost Vs. Trade off

Opportunity cost refers to choosing a better alternative, which is therefore more beneficial. Although in a trade-off one gets what was actually demanded, the cost of other things one owns will go up.


Due to poor decision making, an opportunity cost is the loss of gains that could have been made. Trade-offs, however, do not compute gains or losses, but rather rely on factors such as choice or time.

Summary of Opportunity Cost vs. Trade-Off

In many life situations, opportunity cost and trade off can be used. These concepts came about due to scarcity, as people were faced with many alternatives when it came to spending their time and money. An opportunity cost refers to the act of choosing one project over the other, whereas a trade-off refers to other actions a person would accomplish besides what they are doing currently. In real life, it is important to understand their difference and when to apply them.

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She graduated from Jomo Kenyatta University of Agriculture and Technology with a Bachelor’s Degree in Commerce, specializing in Finance. Having worked with numerous organizations, she has acquired expertise in business management, business administration, accounting, finance operations, and digital marketing.

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