Which of the following best describes 'opportunity cost'?

Opportunity cost is best defined as the benefits missed from the next best alternative, which captures the essence of making a choice in the context of limited resources. When you make a decision to choose one option over another, opportunity cost represents the value of the foregone alternative that you did not select. This concept is fundamental in economics and personal finance, as it helps individuals and businesses evaluate the true cost of their decisions by considering not only the explicit monetary costs but also the potential gains they sacrifice in choosing one path over another.

In this scenario, defining opportunity cost solely in terms of monetary cost, transaction expense, or total income from an investment misses the broader perspective that encompasses the value of what is given up in pursuing a particular choice. It's essential for individuals to understand opportunity cost when making financial decisions, as it can influence budgeting, investing, and overall resource allocation to ensure they make choices aligned with their goals and maximize their utilities.