Essay III  -  Understanding Opportunity Cost and applying it to your future

Learning and applying the concept of opportunity cost will provide you with a lifelong analytical tool for understanding why you make the choices you do. This concept is closely linked to “cost-benefit-analysis”;  i.e. is the benefit equal to or greater than the cost.

Opportunity cost, according to our text, is “the cost of the next best alternative use of money, time or resources when one choice is made rather than another.”  Essentially, opportunity cost is making one choice over another, which is similar to a “trade-off”.  Paraphrasing McConnell & Brue* “The measure of opportunity cost for any resource used to produce a good or provide a service is the value or worth the resource would have in its best alternative use.”

You make dozens of opportunity cost decisions each day.  Should I have the pizza for lunch or the hamburger?  You chose one item over its next best alternative.  Now, given you will finish high school, what choices are you planning to make concerning your future?  Will you continue in academia?  Will you select an apprenticeship in a trade?  Will you join the military?  Will you enter the workplace and begin earning your living?  What will be the economic opportunity costs of your decision?  This essay is designed to compare those costs.

You face two costs when making  an opportunity cost decision.  Opportunity cost can be defined both implicitly and explicitly.  Hence, there are implicit and explicit costs. 

Explicit Costs are the actual money payments used to obtain the good or service you chose.  These payments are for the use or purchase of resources owned or controlled by others.

Implicit Costs are those money payments you forgo or give up because the choice you made does not allow you to enjoy both options.  Essentially, Implicit Costs represent the amount of time and money that is sacrificed because you made one choice instead of another.

Assignment:  Type essay in one page only with 12 font or larger (more than 1 page = - 20 points)

You are required to choose what you would like to be doing next fall;

1.     continuing academically at a community or career college, or

2.     in the CSU system, or

3.     in the UC system (or private university/college)

4.     working fulltime

5.     entering the military or an apprenticeship program

6.     or choose another option

Once you choose your career path, determine and compare what the opportunity costs of that decision are.  Indicate the estimated implicit and explicit costs then subtract them from each other and project what the financial outcome would be 5 years from now.  (80 points)  What did you learn from this assignment?  (20 points)

* Economics Principles, Problems, and Policies – Campbell McConnell & Stanley Brue, 16th edition p. 392-93