What does the 'true cost' of something include?

The 'true cost' of something encompasses not just the price that is paid for it, but also the opportunity lost – this is known as opportunity cost. When making a decision, individuals and businesses must consider what they forgo by choosing one option over another.

For example, if someone decides to spend money on a new phone, the true cost would include the amount spent on the phone itself plus any alternative uses of that money, such as investing it or using it for other purchases. This comprehensive view of cost is essential in economics because it affects decision-making and resource allocation. Understanding both the explicit costs (the price paid) and the implicit costs (the benefits of the next best alternative that is forgone) allows for a better assessment of the overall value of making that choice.

Recognizing this fuller picture leads to more informed choices and can significantly impact economic behavior. Thus, the true cost reflects the total sacrifice made when a choice is made, which is why the correct answer incorporates both the price paid and the opportunity lost.