TANSTAAFL : There Ain’t No Such Thing As A Free Lunch!

• All costs should be recognized.
• You often have many initial alternatives from which you can choose, but in the moment of choice, you choose between only two things. That next best choice you didn’t pick is called your opportunity cost.
• Most choices are not choices between desirable and undesirable options. We usually choose between two desirable options.
• Sometimes we confuse Cost and Price. If you ask the average person, “How much did those new shoes cost?”, they’ll generally give the answer in monetary terms and say “$100.” The price of the shoes was $100. If, however, we are thinking economically, we realize that the $100 represents time or leisure given up in exchange for the $100 in income. So the real cost of your shoes might be 20 hours bagging groceries, after the government deducts for taxes.
• Economics measures tangible AND intangible costs such as time, labor, morality, safety, or forgone leisure.

 

Robert Frost’s The Road Not Taken illustrates opportunity cost better than any work of fiction, non-fiction, or economics ever could.

“I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood and I-

I took the one less traveled by,

And that has made all the difference.”

 

   Robert Frost, The Road Not Taken

 

 

 

 

 

15 Minute lessons that can help illustrate this concept:

What does it Really Cost Me?
Little Nino's Pizzeria: Making Decisions