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.
My guess would be B. $10. Since the other option after the free ticket is to spend $40 on something you’re willing to pay $50 for, it would be like saving $10. But since you’re going to the free concert, you won’t be saving that $10. Does that make sense? I guess I’ll find out in a couple of days.