Opportunity Cost

Explained for you in this excerpt from Economics Professor Don Salyards:

Because our lives are like a candle, each one with a certain time to burn before the flame is extinguished; opportunity cost is an obsession for many economists, including me. The other day my wife and I helped a neighbor pack for a move to a new apartment. I was astounded to find that he probably owned 200 movie DVD’s! As I packed them into boxes my first thought was that at $15 each, he had probably spent nearly $3,000 for these movies. But then, my economist brain focused in on the real cost of those DVD’s; the benefits that he could have received by spending between 500 and 700 hours doing something else. After all, if a person worked a 40 hour week, he would have to work nearly 18 weeks to “spend” 700 hours. With 700 hours, the young man could have taken a complete semester of college courses, or spent time playing tennis, or taken dancing lessons, or learned to cook, or gone on numerous vacations, etc.

It seemed to me that the young fellow had spent nearly 700 hours of “consumption” time watching movies, when he could have benefited greatly by using some of those hours in “investment” time (activities spent educating himself or otherwise improving his future prospects for success). Why did he instead spend all of this time watching movies? First of all, he enjoys movies immensely, so he should spend some time watching them. But secondly, I suspect that he ignored the fact that there were some really beneficial alternative uses for his spare time. Don’t get me wrong, if watching 700 hours of movies gave him more satisfaction than anything else he could have done during every one of those 700 hours, the young man should have watched 700 hours of movies. I suspect, however, that even he would acknowledge that he would have been better off if he had watched a few less movies and reaped the benefits that would have come to him using at least some of his time doing something else.

Comments

[Robert]

Well duh.