Opportunity Costs

Opportunity Costs is the passing up of the next best thing or choice when you make a decision. When you make a decision to buy something you pass up on the opportunity to buy something else or not buy anything at all. Opportunity costs, when dealing with money is the amount of money you lose when you choose to go one way instead of the other. For example: 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%).
An example from my own life would be: When I choose to not study instead of study. As a result I fail the test. I could have chosen to study and pass the test. The opportunity cost is a grade significantly lower than the score I would have gotten if I passed.