QQ: opportunity costs
An opportunity cost is what you sacrifice by choosing one option or pursuing one endeavor over another. It’s one of the most basic principles of economics and here’s a little quiz from a book I’m reading, The Economic Naturalist, that tests your knowledge. (Explanation to come..)
Suppose you’ve won a free ticket to see an Eric Clapton concert tonight and you can’t resell it. You have no set plans tonight, but were considering attending a Bob Dylan concert. A ticket for tonight’s Dylan concert costs $40, but on any given day you would be willing to spend $50 to see him perform (that is, if the Dylan ticket costs more than $50, you’d pass up the concert). There is no other cost associated with seeing either performer. What’s your opportunity cost of attending the Clapton concert?
Choices: a. $0, b. $10, c. $40, d. $50
Note: Only 21.6% of professional economists (200 surveyed in 2005) chose the right answer.
The answer is actually very simple. Your opportunity cost is whatever you have given up by chosing to see Clapton, less any costs that would have been involved with seeing Dylan. So you gave up $50 worth of Dylan pleasure, but avoided spending $40 on tickets. Your opportunity cost is $10.
