Question

Gary Becker was one of first economists to reconsider the traditional theory of consumer choice, which assumes that consumers choose among various combinations of goods and services based on their money prices. Instead, Becker assumed that consumers engage in activities that require the expenditure of their time as well as the expenditure of money for one or more goods and services. Although a consumer’s time does not command a money price, it has an opportunity cost. Let’s say you wanted to attend a basketball game. This consumption activity could require the purchase of a ticket, a program, food and drinks while at the game, and parking in a nearby lot. Also, let’s say you will need to give up four hours of your time (including travel) to attend the game. The total money price of the ticket, program, and related purchases is $50. The opportunity cost of the time spent attending the game may be greater than the money cost, and the opportunity cost of time will be different for different people. When would your opportunity cost of watching a basketball game be especially high? Who would have a higher opportunity cost of their time: someone with a high income or someone with a low income?

Answer 1

Opportunity cost refers to the value of the foregone alternative.

In case of a basketball game, the opportunity cost of watching a basketball game would be very high when a person is giving up either a very important and high priority activity for it or giving up his labor hours where in he could have made money.

Someone with a high income would have a higher opportunity cost of their time, because when a time is lost or used in other activity, the individual loses a greater income which he could earned in that time.

For e.g. X makes $50 per hour and Y makes $20 per hour.

Then opportunity cost of X for 4 hours spent on watching basket ball game will be $50 x 4 = $200, which is much greater than opportunity cost of Y (which would be $20 x 4 = $80)