For example, a local government may wish to refurbish three schools, build a new leisure centre and to improve recycling facilities. It only has the resources to fulfil one of these projects. It will rank the projects in terms of the utility obtained by the local population e.g. leisure centre, then refurbishment of schools and lastly recycling facilities. The local government will invest resources into the leisure centre but not the schools.
Thus in choosing to build the leisure centre it has given up the opportunity of refurbishing new schools
This is known as the opportunity cost