What’s the cost of a good thing?
The
next best alternative use of a
choice.
In other words, whenever you
make a choice you have to give
something up.
That is, opportunity cost refers to
what you could have had if you
used your resources for
something else.
 The
opportunity cost of any activity is the
value of the best alternative thing you could
have done instead.
 For instance, last night, I could have chatted
on the phone with my friend, watched family
Guy with my son, or worked hard on writing
this PowerPoint.
I
chose to watch Family Guy with my son
because that made me happiest. (Don’t tell
Mr. Beaton!) Of the two things that I didn’t
choose, I consider chatting with my friend on
the phone to be better than working on the
PowerPoint.
 So, the opportunity of watching Family Guy
with my son was not getting to chat with my
friend on the phone.
 The
concept of opportunity cost can be
illustrated through the eyes of a small child.
Suppose that a young girl named Amber
receives a $30 gift certificate from her
grandparents to be used at Toys4Me. The
grandparents take the girl to the store, where
she spots several toys she would like—all
priced above $30. After gaining a sense of
what is affordable, Amber narrows her focus
to small stuffed animals ($10 each) and
picture books ($5 each).
 The
grandparents tell Amber that she can buy
three stuffed animals, six books, or some
limited combinations of the two items. She
initially settles on one stuffed animal at $10
and four picture books at $5 each. The
grandparents assure her that this selection
works; it will exactly use up the $30
certificate. Amber takes the goods to the
checkout counter.
 But
while waiting to pay, she changes her
mind. She decides she wants another stuffed
animal because they are so cute. What should
she do? The grandparents tell her to go pick
out a second stuffed animal and then return
two of her four books to the shelf. She makes
the exchange, ending up with two stuffed
animals at $10 each and two picture books at
$5 each.
 From
an adult’s perspective, the second
stuffed animal cost $10. But in the eyes of the
child, it cost two picture books. To get the
second stuffed animal, Amber had to give up
two books. That sacrifice was the opportunity
cost of her last-minute decision. Amber’s way
of looking at cost is one of the fundamental
ideas in economics.
 College
education is an enriching personal
experience and, on average, people who have
college degrees earn 50 percent more than
high school graduates. "Go to college, stay in
college, and get a degree" is sound advice for
those who can handle the college curriculum.
 So
does that mean that Bill Gates, Ken Griffey,
Jr., and Kobe Bryant made wrong choices?
Should Gates, the co-founder of Microsoft,
have stayed in college rather than dropping
out? Should Griffey, Jr. (baseball) and Bryant
(basketball) have gone to college rather than
beginning their careers directly after high
school?
 Going
to college is a personal decision
involving future benefits and present costs.
The future benefits are higher expected
lifetime earnings, on average. The present
costs include direct costs, such as tuition and
books, and the indirect costs of forgoing
income could be earned as a full-time worker
with a high school diploma. For most college
students, the indirect cost—or opportunity
cost—is substantial, but not huge. They attend
college and stay there, as long as they pass
their courses.

Gates in contrast, faced gigantic opportunity costs
if he stayed in college. He recognized that he
needed to quickly establish his software company
to get a head start on others. His opportunity cost
of staying in college might have been the missed
opportunity of establishing Microsoft. Griffey, Jr.
and Bryant, too, faced very large opportunity
costs. They would have sacrificed very large
salaries over the four years of college and also
would have shortened the total length of their
professional careers. Each quickly became a
superstar, with a superstar salary and lucrative
product endorsements.
 Gates,
Griffey, and Bryant understood the
idea of opportunity costs and they each
incorporated it into their decisions. In
retrospect, they made good choices.
 Take
a few moments and work with a partner
to come up with your own example.
 Lets say 5 minutes or so?
 The
fall of 2010 President Obama proposed
spending (approximately) $425 billion dollars
(US) on a new job creation bill.
 What would be the possible opportunity costs
for such government spending?
 Lets
practice this a little.
 Opportunity cost worksheet.