Opportunity Cost

The next best thing...

Learning Target: I can explain the concept of Opportunity Cost.
I can calculate the Opportunity Cost of economic decisions.

Do Now (👨‍🏫 Google Classroom):

  1. How many Arizona's can you buy instead of one movie ticket?

    1. Assume a can of Arizona costs $.99.

      Average movie ticket price in the U.S. is $8.61.

      Ride Along 2 costs $13.39 in Harlem. ↩

  2. How many pieces of gum can you buy instead of one Arizona?
  3. How many pieces of gum can you buy instead of one movie ticket?

The opportunity cost is the best alternative sacrificed for a chosen alternative.

It is the cost of not choosing the next best alternative. In every economic decision, some highly valued opportunity must be sacrificed. The actual good or use of time given up for the chosen good or use of time measures the opportunity cost.

A penny saved is usually not a penny earned. Why?

To personalize the relationship between time and opportunity cost, ask yourself what you would be doing if you were not reading this lesson. Your answer might be watching TV or sleeping. If sleeping is your choice, the opportunity cost of this lesson is the sleep you sacrifice.

Note that the cost is NOT watching TV + sleeping. opportunity cost is the value of best option you give up, not everything that you have to give up.

  1. For me, the opportunity cost of creating this lesson was watching the Oscars.

    ↩

Planet Money Episode 520: $60,000 A Year For College Is Actually A Discount

College is expensive these days. Yet, most universities argue an undergraduate education is actually worth much more than what students pay for it. Clearly there is an emotional logic to this argument. But what do the numbers tell us?

In today's episode, Planet Money takes a behind the scenes look at Duke's costs and considers the university's case that $60,000 a year is actually a discount.

  1. Lafayette has “the number two most beautiful” what in the country?
  2. What is not in Tom’s script?
  3. Where can you find the price of admissions?
  4. What does a year at Lafayette cost?
  5. What did it cost in 2001? How much did it increase?
  6. Prices have been rising faster than ______.
  7. What kind of colleges are the journalists investigating?
  8. What two words were emphasized by the admissions officer?
  9. How much financial aide does Tom get?
  10. What number do you really want for the price of college?
  11. What the difference between “sticker price” and “net price?”
  12. What is one of the most important tools that admissions officers have?
  13. What is the primary reason for giving merit scholarships?
  14. What’s the name of Michelle’s novel?
  15. Which shirt in the example is more attractive? Why?
  16. “You can’t put a price on education.” Can you?
  17. What does having a high “sticker price” allow colleges to do?
  18. How are merit scholarships related to the idea of “opportunity cost?"

<ol>    
    <li>Lafayette has the number 2 most beautiful what in the country?</li>
    <li>What is not in Tom&rsquo;s script?</li>
    <li>Where can you find the price of admissions?</li>
    <li>What does a year at Lafayette cost?</li>
    <li>What did it cost in 2001? How much did it increase?</li>
    <li>Prices have been rising faster than ______.</li>
    <li>What kind of colleges are the journalists investigating?</li>
    <li>What two words were emphasized by the admissions officer?</li>
    <li>How much financial aide does Tom get?</li>
    <li>What number do you really want for the price of college?</li>
    <li>What the difference between &ldquo;sticker price&rdquo; and &ldquo;net price?&rdquo;</li>
    <li>What is one of the most important tools that admissions officers have?</li>
    <li>What is the primary reason for giving merit scholarships?</li>
    <li>What&rsquo;s the name of Michelle&rsquo;s novel?</li>
    <li>Which shirt in the example is more attractive? Why?</li>
    <li>&ldquo;You can&rsquo;t put a price on education.&rdquo; Can you?</li>
    <li>What does having a high &ldquo;sticker price&rdquo; allow colleges to do?</li>
    <li>How are merit scholarships related to the idea of &ldquo;opportunity cost?&quot;</li>
</ol>

Readings

Textbook

Macroeconomics for Today

  1. Explain why scarcity leads to opportunity cost. Give an example from your own life.

  2. Suppose a advertises a "free car" contest. Is this car free because the winner pays zero for it?

Article

Even for Cashiers, College Pays Off

When you finish, think like an economist:

  1. How are merit scholarships related to the idea of "opportunity cost?"
  2. Attending college is expensive, time consuming, and it requires effort. So why do people decide to attend college?