Let us revisit the question on opportunity cost posted a few days back.
Suppose you won a free ticket to see an Eric Clapton concert tonight. You can't resell it. Bob Dylan is performing on the same night and his concert is the only other activity you are considering. A Dylan ticket costs $40 and on any given day you would be willing to pay as much as $50 to see him perform. (In other words, if Dylan tickets sold for more than $50, you would pass on the opportunity to see him even if you had nothing else to do.) There is no other cost of seeing either performer.
There were only three people who responded to this question. Two chose $0 and the other chose $40. All of them got it wrong!
Here's the solution from the book:
The only thing of value you must sacrifice to attend the Clapton concert is seeing the Dylan concert. By not attending the Dylan concert, you miss out on a performance that would have been worth $50 to you, but you also avoid having to spend $40 for the Dylan ticket. So the value of what you give up by not seeing him is $50-$40 = $10. If seeing Clapton is worth at least $10 to you, you should attend his concert. Otherwise, you should see Dylan. In other words, the opportunity cost of seeing the Clapton concert is $10.
When this question was posted to 270 undergraduates who had previously taken a course in economics, only 7.4% of them answered it correctly. Since there were only four choices, students who picked at random would have had a correct response rate of 25%. When the question was posed to 88 students who had never taken an economics course, 17.2% answered it correctly - more than twice the correct response as for former economics students, but still less than chance. When the same question was given to a sample of 199 professional economists, only 21.6% chose the correct answer; 25.1% thought that the opportunity cost of attending the concert was $0, 25.6% thought it was $40 and 27.6% thought it was $50.
Given that opportunity cost is such an important concept in economics, this finding is rather shocking! However, it appears that most economics textbook and courses do not give enough attention to the opportunity cost concept. As a result, most economics students and economists are unable to answer the question correctly.
Did you figure out the correct answer on your own? Regardless, I hope you have a better idea of this crucial concept in economics now!
I have always wanted to provide more value to others. Tuition allows me to reach a group of students and enthuse them in the study of Economics; writing a guide-book on Economics can allow me to deliver tremendous value, but it takes ages (but that being said, I am still working on one!). The idea of starting a blog to share H2 Economics resources and ideas came to me in the midst of a lesson today. I was sharing my ideas and views on an essay question and as usual, the stream of thoughts just kept flowing. Until what seemed like five minutes to me has passed, I stopped and asked if my student had any questions. There was this knowing smile on his face, and I knew that he had grasped the ideas that I was discussing. And then, he told me that I had in fact talked for fifteen minutes on the question.
Wow. Fifteen minutes. I was really surprised. It occurred to me all of a sudden that maybe I have a lot that I can share with H2 Economics students, and some of them might actually be interested to hear what I have to say.
I don't have an Economics degree yet. I don't have a teaching degree either. I am a 21 year old economics enthusiast, who spends his free time teaching Economics tuition to JC kids and playing an interesting yet often misunderstood mind-sport called Bridge. I am not always correct, and I surely do not have all the answers. However, what I hope I can provide is insight, experience and that additional bit of joy to your learning. I shall not bore you further with my credentials and let you get started with the content. If you are interested to find out more about me, you can always read my "About" page or talk to me over facebook :)
I hope this blog can develop into a lively community for Economics students at the pre-university level to discuss anything related to the discipline. I welcome any form of feedback and comments that are constructive in nature. Please correct me if you think I am wrong, and please share this with your friends if my articles strike a chord with you.
Question from a reader -
Hi! Interested to hear your thoughts about this: where do you draw the line between impossible and huge-effort-possible goals?
First, I'll be honest. I don't have a perfect neat answer for this that's epiphany generating... I'm going to try to work through it on paper, and I appreciate feedback from everyone in the comments if you have related ideas.
Let's get started. First and foremost, I can't say this enough - study history! If you don't study history, you don't know what's possible. Period. You need to study history if you want to know what's possible.
Here's some good people to brush up on. Now, most people's reaction is, "I couldn't do that! He did so much!" But trace their steps, these men often came from humble origins and suffered much. Don't say "Wow." Ask, "How?" How did they do it?