One outcome of the production possibilities model that's tough, yet very real-world,
is that without acquiring more resources,
in order to get more of one kind of output (like a better economics grade),
you MUST sacrifice some of the other output (like your math grade).
This sacrifice is a fact of life, folks; it's called opportunity cost.
By definition, opportunity cost is the highest-valued foregone alternative when any choice is made.
Look -- think back to the example of the student.
What was the opportunity cost of getting a better grade in economics?
The student would have to accept a lower grade in math, so the sacrifice was the math grade.
The full cost of any choice is not just the price tag.
Although that direct, out-of-pocket monetary cost does influence our decisions,
the full cost also includes the opportunity cost.
What gets sacrificed; that is to say, what else could you have done with your resources?
Ok, here's an example of a choice that you have in common with the rest of the class:
you opted to go to college.
What is the full cost of that decision?
Remember that the full cost of attending college is the sum of the direct,
those out-of-pocket costs, and indirect, or opportunity cost.
Is the opportunity cost really all that important? Can it influence a decision one way or another?
Well, let's think it through, and then decide.
What are the direct costs of attending college? That is, what out-of-pocket costs will you incur?
Tuition, registration fees, books, supplies, etcetera.
Now, what are the indirect costs of attending college?
That is, what could you have done with your time and energy, if you weren't in college?
What is it that gets sacrificed?
Note that opportunity cost doesn't necessarily have to have a specific dollar price tag attached,
just a value. Well, it might be that you could have been working.
If this is the case, you could be sacrificing salary and/or career advancement.
Possibly, you're giving up time that you could be spending with friends or family.
For myself, one thing that was sacrificed was starting a family.
I waited until I was finished with grad school to have a baby.
Or maybe travel, or just leisure time.
In the late 1990s, my husband worked at a dotcom,
and he'd tell me how every day for three weeks the newly hired CEO would stare out the window
during meetings and mumble, "I could be out playing golf right now."
Then the CEO quit.
The decision to go to, or stay in, college is similar.
If the opportunity cost is too high, the decision-maker will decide not to attend.
This often occurs with college athletes. If professional teams will hire them,
then they could be sacrificing millions by staying in college.
As a result, top athletes often leave college early for the pros.
Going back to the original question, what is the opportunity cost of attending college?
Well, it depends.
Remember that by definition, the opportunity cost is the single highest-valued alternative
to that particular decision-maker when any choice is made.
The opportunity cost, then, varies from person to person.
I even had a friend in college whose boyfriend, upon dumping her,
informed her that she was the opportunity cost of attending college.
She never cared much for economics after that.
What is your opportunity cost of attending college?
Even with all the costs associated with attending college, you decided to attend anyway.
Why is that?