What I Learned Today - A: opportunity costs

23rd June 2008

Post with 10 notes

A: opportunity costs

The opportunity cost of attending the Clapton concert is $10. Right on joojoobee, getlara, biteofpythias, mallisser, fuckinnerd, johncarney, heyitsseszter and everyone else.

Here’s the brief explanation: It is worth $50 to you to see the Dylan concert. However, you would have to spend $40 for the ticket. The difference, $50-$40=$10. By choosing to see Clapton, you’d be giving up a value of $10. That’s your opportunity cost. Thus, if seeing Clapton is worth at least $10 to you, you should use the free ticket. (I’d see Clapton over Dylan any day.)

At the 2005 American Economic Association meeting, only 21.6 percent of professional economists got the right answer. When the question was posed to undergraduates, 7.4 percent of those who had taken a course in economics chose the right answer, whereas 17.2 of those who had never taken an economics course chose the right answer.

Again, I read this in The Economic Naturalist, which applies economic explanations to everyday enigmas like Why can’t you ever find a taxi on a rainy day? and Why do women’s clothes button from the left, and men’s clothes button from the right? and Why are the fuel tanks of cars on different sides? I’ll share these answers and more in a different post..