Economics principle questions

1. people face trade-offs

2.the cost of something is what you give up to get it

2條都話要得到1d野就要放棄1d野, 但2者分別何在?

lecturer話第2條中的opportunity cost係計highest option forgone

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• 1 decade ago

hi,

Obviously you are a little confused about the notion of cost.

q1 is not important. It only tells you a general situation. Whenever we make a decision we need to let go something because resources are scarce.

q2 is the definition of cost which is also not too important. It means what you have to forgo in order to obtain something else.

Now we have come to the &#39;meat&#39; Oh yes, Opportunity cost is the concept you cannot afford to be confused because this is the only cost that you need to think about when making a decision.

Opportunity is the &#39;next best&#39; option. Which is to say it is only second to the one that you choose to have. It is something &#39;GOOD&#39; not something &#39;BAD&#39;. eg. money, leisure time...

I guess you have misunderstood your lectuer. He was right. What he was referring is the summation of all the fees that you paid plus the best value that you need to forgo.

If you are a super star, you probably could earn \$10,000 per hour. If you choose to stay in the class and if the class last for 3 hours then your opportunity cost will be tuition for 3 hours plus \$30,000.

In the mean time, if you happen to be a lawyer. Assuming you can earn \$ 20000 for 3 hours as a lawyer, then the income that you may earn as a lawyer is not an opportunity cost because it is not the second best option. i.e. \$30000+tuition &gt; \$20000+tuition.

So why is going to school&#39;s value higher than \$3,0000+tuition? Because you treasure the opportunity to learn and you probably have a lot of money. As such, staying in the class to work for a degree may worth much more than \$30000+tuition.

Tuition is &#39;part&#39; of the opportunity cost because education is not a free good. However, it alone is not the opportunity cost. Say for example. If you are a Mega star, and you probably is super rich. But you only have an elementary school diploma. Then spending 3 hours in the class may worth \$1 million dollars to you. In the mean time, since you are super rich, and you are super buzy. Then the opportunity to rest for 3 hours may worth half a million to you. In this situation, your opportunity cost will be (rest at home) worths half a million plus the tuition cost. And earning another \$30000 means nothing to you. And it won&#39;t be an opportunity cost to this decision.

Is that clear?

Samuel Khou

Source(s): I use to teach at Utah State University (HK Branch)