KI 2 p10 BOX 1.2 THE OPPORTUNITY COSTS OF STUDYING What are you sacrificing? You may not have realised it, but you probably consider opportunity costs many times a day. We are constantly making choices: what to buy, what to eat, what to wear, whether to go out, how much to study, and so on. Each time we make a choice to do something, we are in effect rejecting doing some alternative. This alternative forgone is the opportunity cost of the action we choose. Sometimes the opportunity costs of our actions are the direct monetary costs we incur. Sometimes it is more complicated. Take the opportunity costs of your choices as a student. Buying a textbook costing 59.99 This choice does involve a direct money payment. What you have to consider are the alternatives you could have bought with the 59.99. You then have to weigh up the benefit from the best alternative against the benefit of the textbook. ? 1. What might prevent you from making the best decision? Coming to lectures Even though students now pay fees for their degrees in many countries, there is no extra (marginal) monetary cost in coming to classes once the fees have been paid. You will not get a refund by missing a lecture. The fees, once you've paid them, are what we call a'sunk cost'. So are the opportunity costs zero? No: by coming to a lecture you are not working in the library; you are not sleeping; you are not undertaking paid work during that time. If you are making a rational decision to come to classes, then you will consider such possible alternatives. ? 2. If there are several other things you could have done, is the opportunity cost the sum of all of them? 3. What factors would make the opportunity cost of attending a class relatively high? Revising for an economics exam Again, the opportunity cost is the best alternative to which you could have put your time. This might be revising for some CASE STUDIES AND APPLICATIONS other exam. You will probably want to divide your time sensibly between your subjects. A sensible decision is not to revise economics on any given occasion if you will gain a greater benefit from revising another subject. In such a case the (marginal) opportunity cost of revising economics exceeds the (marginal) benefit. Choosing to study at university or college What are the opportunity costs of being a student in higher education? At first it might seem that the costs of higher education would include the following: Tuition fees. Books, stationery, etc. Accommodation, food, entertainment, travel and other living expenses. But adding these up does not give the opportunity cost. The opportunity cost is the sacrifice entailed by going to university or college rather than doing something else. Let us assume that the alternative is to take a job that has been offered. The correct list of opportunity costs of higher education would include: Books, stationery, etc. Additional accommodation and travel expenses over what would have been incurred by taking the job. Wages that would have been earned in the job, less any income received as a student. The tuition fees paid by the student. 4. Why is the cost of food not included? Should the cost of clothing be included? 5. What impact would it have on the calculation of opportunity costs if you really disliked the nature of the work in the best alternative job? 6. Is the opportunity cost to the individual of attending higher education different from the opportunity costs to society as a whole? Do the benefits of higher education for society differ from those for the individual?