Choosing any scarce thing forecloses other options; such lost options are economic costs. Suppose you drive a gas guzzler. Buying an extra gallon of gasoline per week may preclude an extra slice of pizza weekly, but buying the pizza instead of the gas may force you to drive less and walk more. Economists view economic (or opportunity) cost as the value of the next best option forgone because of a decision.

 

Opportunity cost is the value of the best alternative surrendered when a choice is made.

 

Table 2  The Costs of a College Education—2001*	National Averages (annual)	Your Costs
Tuition	$3,400 (public) $18,200 (private)
Books & misc. supplies	$1,400
Forgone income (conservatively)	$13,000 (minimum wage)
Annual total	$17,800 to $32,600
Typical total for a four-year degree	$70,200 to $130,400
* Sources: American Council of Education, Department of Education Estimates for 2001, and author estimates and updates.

 

      Most people think costs are measured solely by the money paid to produce or acquire goods, but opportunity costs are ultimately personal and involve far more than money alone. Have you ever estimated the cost of your education? Fill in the blanks in Table 2, which verifies that these costs extend far beyond payments for tuition and books. Consider the value of your time. Instead of studying and attending class, you could be holding a full-time job (or maybe two). You may be sacrificing better food and clothes, a nice car, and a comfortable apartment. The values of all forgone alternatives are the true costs of education. But suppose you quit school. The costs of your nice car, apartment, food, and clothing would include the sacrificed enjoyment of learning and campus life, and the higher future income and consumption your degree might have made possible.

      To show how broad the concept of opportunity cost is, suppose Lynn and Kelly both love Chris. Chris reciprocates both Lynn's and Kelly's love. Unfortunately, Lynn threatens to find “someone new” if Chris does not quit seeing Kelly. Soap opera fans might empathize with Chris's plight, but economists view the real cost to Chris of a relationship with Lynn as giving up Kelly, and vice versa.

      What people do often differs from what they say, so economists concentrate on behavior instead of verbiage. For example, Focus 2 suggests that people usually exaggerate when describing something as “priceless”—implying that its value is so high that trying to estimate cost is futile. Fortunately, most people are very ingenious in finding and selecting good alternatives.