What is the difference between Trade-off and opportunity cost?
Trade-off and opportunity costs are frequently used terms in economics. Many students find a hard time during their revision to comprehend their distinction.
The main difference between trade-off and opportunity cost is that trade-off is the exchange of one thing in order to get another thing whereas opportunity cost is to make the best alternative choice among two things.
The lesson provides detailed insight into the difference between trade-off and opportunity cost with comparison charts and examples.
What Is Trade-off?
The trade-off is an economical term where an individual sacrifice one thing in order to get another one. An individual is required to make a comparison among things before making a decision. This common in a situation where there limited resources.
Factors that Influence Trade-off:
- Level of risk
- Different path
- Social cost
- Level of complexity
What Is Opportunity Cost?
Opportunity cost is an economic term that refers to choosing one of the two available choices and missing on the benefits that would have been derived from the alternative opportunity given up.
Factors that Influence Opportunity Cost
- Consumer choice
- Competitive advantage
- Time management
- Career choice
- Production possibilities
- Cost of capital
Comparison Chart: Trade-off Vs Opportunity Cost
| Basic Terms | Trade-off | Opportunity Cost |
| Meaning | It is the exchange of one thing in order to get something else | Refers to making a choice among the best two alternative things and choose the best-fit item |
| Core Difference | It is the process of sacrificing a belonging completely to get what you want | It is the process of choosing the best alternative |
| Importance | Help in getting what you demanded at the expenses of the other belonging | Help in making the best choice from the available alternatives |
| Relation to other choices | Has an indirect relation with what was sacrificed | Has a close relation from what was left |
| Calculation Formula | Has no formula for calculating the trade-off | Opportunity Cost= return of the most beneficial option – the return of the chosen option. |
Core Difference between Trade-off and Opportunity Cost
- Opportunity cost refers to the next available opportunity whereas trade-off refers to two opportunities or more choices
- The trade-off is sacrificing for something else whereas opportunity is choosing the best alternative available
- Opportunity cost refers to the gain which could have been lost due to wrong decision whereas trade-off has nothing to do with gain or loss
- The benefit of opportunity cost is making a good decision whereas trade-off help to get what was demanded
- The loss incurred due to opportunity cost are taken into consideration while trade-off has nothing to do with the loss
- Opportunity cost can easily be calculated due to the available formula, unlike trade-off.
Read More: Difference between Sales and Revenue
Comparison Video
Summary
The core difference between trade-off and opportunity cost is that trade-off refers to the course of action taken to perform a preferred course of action whereas opportunity cost refers to opting for one course of action and foregoing the other course of action.
More Sources and References
- Trade-off. Wikipedia
- Opportunity Cost. Econlib