Question

You and a friend decide to spend $100 each on concert tickets. Each of you alternatively could have spent the $100 to purchase a textbook, a meal at a highly rated local restaurant, or several Internet movie downloads. As you are on the way to the concert, your friend tells you that if she had not bought the concert ticket, she would have opted for a restaurant meal, and you reply that you otherwise would have downloaded several movies. Identify the relevant opportunity costs for you and your friend of the concert tickets that you purchased. Explain briefly.

Answer 1

Opportunity cost arises when resources are scarce. here scarce resources are time and money. Opportunity cost is measured by the value of the next best alternative. For my friend, the next best alternative of the concert was a restaurant meal. She sacrificed a restaurant meal for the concert. her opportunity cost is the meal she could have enjoyed. My opportunity cost is the several movies that I could have downloaded with that money since that is my next best alternative after the concert.