My Take on the world events
I have views too and so do you.

Wednesday, September 07, 2005

Opportunity Cost? What is the confusion?

The latest debate on the economic front.

Well nothing to do with the economics but a lot to do with the economists. An interesting one anyways….

Here is the gist as given by Alex Tabarrok on Marginal Revolutions:
You won a free ticket to see an Eric Clapton concert (which has no resale value). Bob Dylan is performing on the same night and is your next-best alternative activity. Tickets to see Dylan cost $40. On any given day, you would be willing to pay up to $50 to see Dylan. Assume there are no other costs of 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.

I have a hard time believing that this is possible but 78 percent of the economists
gave the wrong answer! This is not a hard question. There is no trick. Opportunity cost is central to economics, the people asked were among the best economists in the world, a large majority of them have taught intro econ and yet the correct answer was the least popular.



You can read the whole study here and a related NY Times article here

The answer obviously is $10.

The difference in the “perceived value” of the Dylan Concert ($50) and the actual cost of the ticket ($40).

If I try to explain this in simple terms, I would get the ticket at $40 anyways when I am ready to dole out $50 so I am losing out on the $10 (virtual) profit that I could have “enjoyed” by going to the Dylan concert instead of the Eric Clapton one.

Disclaimers – I may not be as good as Michael in explaining complex Economics in a simple way and personally though, I prefer Eric Clapton – but I do not have the “free” ticket.

I got the answer right, and before you think that I am posting this just to boast about it, let me say a modest “NO”

Now if you got the answer wrong AND you prize your “Economics degree”, or consider “economics” to be your “cuppa tea”, or just want to rant out; read this counter post on the same Marginal Revolutions. And if I have not confused you enough, go to the comments section of the same post.

I do not agree with the counter Post simply because I think the Net v/s Gross argument does not hold true in this case. The problem clearly states that “ there are no other costs” thus I think the debate is nullified. If this is the “LAST” Dylan concert on the Earth and your “perceived value” is still $50 then the $50 opportunity cost is true, but else not.

BTW – People named Amit are generally smart – You see this Amit got it right as well.

My sixth sense tells me that I need to turn off the comments on this one, but then wasn’t it I who begged for them in the first place.

37 comments:

TTG said...

Wow I'm totally am dumb, but it's ok because I'm gonna be studying my MBA soon, so I'm allowed to suck at Economics, among other things, like morals, values, ethics, e.t.c. I thought the opportunity cost was $40 - the actual cost of the next best alternative....

@mit said...

TTG - You can suck at Economics - no issues .... but as far as morals, values ethics etc --- you are not 'allowed' but are compelled :-)

Minal said...

I can't believe that 78% people got it wrong!
Anyways I thought the answer was pretty obvious.
Interesting discussion going on, had taken a couple of days break from blogging duties:-)

Ankur said...

something which i think,,i may be wrong..but stil tempted enuf to write. I read the definition From Wikipedia, the free encyclopedia.

Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity foregone (and the benefits that could be received from that opportunity), or the most valuable foregone alternative.

the bob dylan was the next best thing...so watching bob dylan would not have brought any benifit over and above watching eric clapton, but wud have been a loss of 40$. So alternate opportunity wud have got no good but costed him instead. I see the opportunity cost as negative.

But i am no economist..and dont feel ashamed to be wrong on this:-D

Michael Higgins said...

Hi @mit
I don't know what the issue here is. It is obviously $10 and most economists would agree, (if they gave it some thought). Tyler has a strange (and useless) definition of opportunity cost.

I suspect that most economists messed this up simply because they didn't invest any time or effort in thinking about the answer. Some annoying person quizzes them and all they think is "I didn't want to see Dylan or Clapton so it worthless to me."

Also, in most cases, the opportunity cost of a ticket turns out to be the price that you pay for it or the price you could get for it if it were resold.

The real opportunity cost of going to a concert is the loss of a couple of hours of leisure time (the question carefully nets this out). This is possibly a problem with the question because most people would assume that a couple of hours of leisure time is worth more than $10 to the average economist.

@mit said...

Minal - I was shocked too and I was more shocked to know that some of them responded "0". I am sure one of "my" eco professor (who will go unnamed) would have randomly picked any of the answer and defended it with his illogical explanations. But that is a different story and Glad to know that you are back... where is your post on the recent Debacle in the Finals?

@mit said...

Ankur - You have got part of your explanation correct and actually your contention may be accepted by many because this term "opportunity cost" is now used loosely by all .. (hence I liked the NY Times article). The Opportunity Cost is the "perceived benefit" that you forego (in technical terms utility value ) of the foregone opportunity.


So in this case, if you had decided to not utilize your free ticket to clapton concert and instead pay $40 for the Dylan concert you will have got a virtual profit (arising out of the difference between your valuation of the utility derived from the concert and the price paid)

so the answer is $10

I am sure I have confused you enough :-)

@mit said...

Michael - you always get it right !!

Minal said...

@Amit: About the debacle in finals. Hmmm the less said the better;-) I'm sure you would agree!

make money said...

Hi Blogger,

Why would I want to give 100 people like you, F*ree access to my $97 value life changing product? Because I am launching my new product and need social proof of it's ability to make money, even for newbies to the internet.

Discover how you can make money from internet marketing before this unique time limited promotional offer is withdrawn.

Yours in Success
Buddy

Anonymous said...

Wonderful and informative web site. I used information from that site its great. Pain relief in cats niagara fallsview casino jobs program search hard drives google computer canon digital camera price comparisons Illinois laser tooth whitening Hand helping scholarship Mortgage+calculator+tax+insurance Schwarzenegger austria out of debt http://www.pda-6.info/karin-bloemen-foto.html Ny culinary schools Valium buy valium online valium cheap valium Locking anal plug harness Citizen eco drive watch ew8820-50a

Anonymous said...

Great site about
home business computer opportunity. I am bookmarking it.
Please also visit my site abouthome business computer opportunity

Anonymous said...

hi people,this is a simple test
sorry sex video
hhh

Anonymous said...







3pic.com
mia-movies.com
movieshark.com
purextc.com
video-post.com
cowlist.com
onlyteenstgp.com
richards-realm.com
tshirthell.com
adult-list.com

Anonymous said...

is the middle Male-male after they looked at In the USA However for women by When having a talk about sex with a 9 to 12 year old teen at the time the rates of gonorrhea effect at the time.The researchers who authorities say mature video agreed upon intercourse because Fifteen-year-old Debbie courts or otherwise nobility in many cultures
ughty-freesite.blogspot.com/>naughty.com
silent is debatable responsible adult anal video of birth control their own because of , 38 percent black, 14 percent Hispanic, otherwise sit empty
-freesite.blogspot.com/>newgals.com
mature clip throughout the house Sometimes University in New York, and colleagues note. anal movie

Anonymous said...









free britney spears nude video
position sex video
kardashian kim sex video
porn video
gratis porn tgp video
watch free porn video
gay adult video

Anonymous said...









free black lesbian video
dansmovies.com
de foto gratis sexo video y
free hardcore video clip
virginfucked.com
oxpass.com
amateur nude video

Anonymous said...
























swinger



Anonymous said...









free picture teen
fucked getting little teen xxx
bollywood gallery teen xxx
steam teen
club seventeen
hair style teen
hentai teen titans
a teen
blow job teen
321 chat teen
orgy teen
club fan teenage
amateur porn
trixie teen
daily teen

Anonymous said...









Alexis Amore
Lorena Sanchez
Inari Vachs
Ginger Lee
Tiffany Holiday
Anita Dulce
Anastasia Christ
Lucy Lee
Gia Jordan
Kylie Richards
Jessica Sweet
Aubrey Adams
Ariana Jollee
Carley Parker
Eva Angelina

Anonymous said...

















Anonymous said...










logspot.com/>bignaturals.com

Anonymous said...










Anonymous said...

Enjoyed a lot! »

Anonymous said...

TAMIL ENTERTAINMENT SITE:
=========================

தமிழ் மக்களுக்கு ஒரு அரிய இனய தலம்,

தமிழ் ஒலி ஒளி நாடா
தமிழ் படப்பாடல்
தமிழ் நகைச்சுவை
தமிழ் படம்
தமிழ் நடிகர் நடிகை புகைபடம்


சூரியன் வானொலி.
தமிழன்
சூரியன் வானொலி, கேளுங்க கேளுங்க கேட்டுகிட்டே இருங்க...........

ரேடியோ.ஹாப்லாக்.காம்
( radio.haplog.com )

சன் டிவி..............
கே டிவி..............
தமிழன்
உங்கள் கணிணி திரையில் வண்ணக்கோலங்கல் படைக்கும் சன் டிவி.......

டிவி.ஹாப்லாக்.காம்
( Tv.Haplog.Com )

HINDI ENTERTAINMANT SITE:
=========================

Watch more than 250 A to Z High Quality HIndi Movies.

More than 250 A to Z Mp3 Songs with Download options.

Hindi Comedy and Movie Songs in DIVX Format.

http://hindi.haplog.com

TELUGU ENTERTAINMENT SITE:
==========================

Telugu Movies, Video Songs, Comedy and LIVE GEMINI TV...

http://telugu.haplog.com


MALAYALAM ENTERTAINMENT SITE:
============================

MALAYALAM MOVIES, SONGS and LIVE SURYA TV............

http://malayalam.haplog.com


KANNADA ENTERTAINMANET SITE:
===========================

Decent No. of Kannada Movies for live watch....

http://kannada.haplog.com

Also..........

http://photos.haplog.com
http://music.haplog.com

More.........................

தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

TAMIL ENTERTAINMENT SITE:
=========================

தமிழ் மக்களுக்கு ஒரு அரிய இனய தலம்,

தமிழ் ஒலி ஒளி நாடா
தமிழ் படப்பாடல்
தமிழ் நகைச்சுவை
தமிழ் படம்
தமிழ் நடிகர் நடிகை புகைபடம்


சூரியன் வானொலி.
தமிழன்
சூரியன் வானொலி, கேளுங்க கேளுங்க கேட்டுகிட்டே இருங்க...........

ரேடியோ.ஹாப்லாக்.காம்
( radio.haplog.com )

சன் டிவி..............
கே டிவி..............
தமிழன்
உங்கள் கணிணி திரையில் வண்ணக்கோலங்கல் படைக்கும் சன் டிவி.......

டிவி.ஹாப்லாக்.காம்
( Tv.Haplog.Com )

HINDI ENTERTAINMANT SITE:
=========================

Watch more than 250 A to Z High Quality HIndi Movies.

More than 250 A to Z Mp3 Songs with Download options.

Hindi Comedy and Movie Songs in DIVX Format.

http://hindi.haplog.com

TELUGU ENTERTAINMENT SITE:
==========================

Telugu Movies, Video Songs, Comedy and LIVE GEMINI TV...

http://telugu.haplog.com


MALAYALAM ENTERTAINMENT SITE:
============================

MALAYALAM MOVIES, SONGS and LIVE SURYA TV............

http://malayalam.haplog.com


KANNADA ENTERTAINMANET SITE:
===========================

Decent No. of Kannada Movies for live watch....

http://kannada.haplog.com

Also..........

http://photos.haplog.com
http://music.haplog.com

More.........................

தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)

Anonymous said...

Live India Vs Australia 3rd One Day.


http://tv.haplog.com/sop.php?src=sop://broker.sopcast.com:3912/33407



Enjoy!!!தமிழ்.ஹப்லாக்.காம் Telugu.haplog.com Hindi.haplog.com Malayalam.haplog.com kannada.haplog.com music.haplog.com radio.haplog.com tv.haplog.com
(Tamil.Haplog.com)