Mulzar.com

I was reading about microeconomics and stumbled upon an interesting old article about opportunity cost. Apparently 78% of all economists couldn’t answer a simple question regarding opportunity cost. I think it would be interesting to ask the same question for my readers to see how intelligent my readers are on average:

“You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan isperforming on the same night and is your next-best alternativeactivity. Tickets to see Dylan cost $40. On any given day, you would bewilling to pay up to $50 to see Dylan. Assume there are no other costsof seeing either performer. Based on this information, what is the opportunity cost of seeing Eric Clapton? (a) $0, (b) $10, (c) $40, or (d) $50. “

By the way you don’t need to be an economist or even taken a single class of economics to understand what opportunity cost. It’s simply the value of the second best alternative, nothing more. For example if I could work as taxi driver making $100 a day or a degenerate gambler making $50 then my opportunity cost is $50. Because my choice is to work as an taxi driver but I miss out on $50 a day. I can understand why so many get the above question with Bob Dylan wrong. People tend to forget keywords like “value” and “price”. It’s frigthening to hear those numbers, I’m beginning to realize why we ended up in a financial crisis!

Tags: basic opportunity cost question, basics in microeconomics, confusing opportunity cost, majority of economists are stupid, microeconomics opportunity cost

This entry was posted on Tuesday, January 20th, 2009 at 5:11 pm and is filed under Other. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.