Opportunity cost: A reexamination

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Notes

1. The economists are “well trained” in the sense that 83 have degrees from top-30 institutions, and 120 have taught the principles course.

2. The distribution of the 199 answers follows: A. 50 (25.1%), B. 43 (21.6%), C. 51 (25.6%), and D. 55 (27.6%).

3. The exception is Samuelson and Nordhaus (2010), which illustrates the concept of opportunity cost with a thing-forgone example.

4. Green presented a succinct argument that relative prices reflect an alternative forgone, not tired muscles from labor or delayed consumption from saving and waiting for capital to deliver its return.

5. His reservations about quantities and preference for values are discussed below.

6. Richard G. Lipsey (1963, 40), “The cost of having more of good X (by cost we mean what must be given up in order to obtain something) is having less of good Y.”

7. These points have the minimum quantities of other goods that are consistent with the conditions described in the question. The decision maker is willing to pay $50 for the Dylan concert (50 units of other goods), and the market price of a Dylan ticket is $40 (40 units of other goods). Willingness to pay requires ability to pay, so the decision maker has (at least) 50 units of other goods.

8. What is the minimum amount (in dollars) you would have to value seeing Eric Clapton for you to choose his concert?

9. The expected real return from holding a bond is the nominal interest rate on the bond minus the expected inflation rate, and the expected real return from holding money is the negative of the expected inflation rate, so the expected opportunity cost of holding money is also the nominal interest rate on a bond.

10. Net benefit can be interpreted as consumer surplus for households and producer surplus for firms.