Before reading the rest of the thread, read and answer this, dont post the answer

You won a free ticket to see an Eric Clapton concert (which
has no resale value). Bob Dylan is performing on the same night
and is your next-best alternative activity. Tickets to see Dylan cost
$40. On any given day, you would be willing to pay up to $50 to
see Dylan. Assume there are no other costs of seeing either
performer. Based on this information, what is the opportunity cost
of seeing Eric Clapton?
A. $0
B. $10
C. $40
D. $50

look at this paper afterwards

http://www2.gsu.edu/~wwwcec/docs/ferrarotaylorbep.pdf




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this study is flowing amongst students in our college lately

thoughts? Is the current situation really that sad? Does it even matter? Did you answer correctly? Is current econ really "broken"?

plz dont turn this into praxeology vs the rest of the world debate.

i really don't think the grad students had trouble with the reasoning of the question, but with the figuring out what the question was really asking. my initial reaction to the question was that he didn't forgo any actual monetary benefit by not going to the dylan concert. it's like women thinking they're saving money by buying boat loads of shoes when they're on sale.

so yea. in my opinion if grad students are getting freshmen level questions wrong it's because there is something wrong with the question, not the students. also i don't think economics is actually broken. i think politics/business makes it seem like there is a lot of disagreement between top level economists when there really isn't any. see krugman,

http://krugman.blogs.nytimes.com/201...acroeconomics/

Hmm, I got it right and it seems obvious.

Actually, I don't think it's a bad question--it is pretty explicit (no pun intended) in what it is asking. If you read the paper, the authors thought the same thing, and so they reworded it so that any particular definition of opportunity cost was eliminated, and still over 50% of respondents got it wrong.

And that's the problem. People could have been looking at explicit costs (as you just did), rather than the implicit costs that are central to the idea of opportunity costs.

Quite sadly, I have to disagree as I said above.

But I can generally agree with this.

Note: I got the question right, but then questioned myself (but stayed with the correct answer) because the question seemed too easy.

Im not saying that economists are disagreeing a lot. Thats not what I meant (or even suggested). Obv I read that article (I mean krugman's article now). I also dont consider myself to be AE or anything close to that (that said, linking krugman...really? Go pay someone to dig a hole or start a war to help economy dude).

Economics is prob the only field where I dont need to pass a single econ class in order to get into top/really good PhD program. I cant imagine going into physics PhD with just math undergrad (etc). Its a science about allocation of scarce resources, which is basically about human decisions, yet its considered a technical degree and math undergrad is oftentimes preffered.

Im not saying its wrong, Im not qualified to claim that, but I do think that its somewhat interesting and it shouldnt be left unquestioned/ value of Econ undergrads should be questioned if this is correct approach.

from answers.com,

look at all the various definitions on this page. some say monetary cost, some distinguish between economic cost and accounting cost. i'm not sure what econ grad students are learning but i think it is a stretch to assume they're just too stupid to answer the question.

noone sane would ever read utility as monetary/tanginble goods only. Economic theory would fall apart in a second.


Opportunity costs are simply not covered in graduate Econ studies and math undergrads, you know, those who can easily avoid Econ 101 course, are oftentimes preffered in the top programs.

Noone says "stupid", thats obv ridiculous. I essentially asked about current model of economics education, I thought thats obvious.

There is just huge difference between Econ undergrad and grad school. In undergrad, integrals are like the highest math we use (and thats standard afaik) (well plus very basic lin algebra for econometrics). In grad school, they suddenly require theorem based math.

Seems like either econ undergrad is useless, because for real econ math is needed, or grad econ is ******ed, because they wanted smart students, math classes are considered to be "IQ tests" and they turned social science upside down.

I mean there is one small, elite, econ school here. They teach heavy math in undergrad (they dont use it in econ classes, but top students can go on to study in top schools in the world later on) one of the top economists in the country, Tomas Sedlacek (one of 5 "hot shots in econ" according to Yale etc) didnt get his PhD, because his dissertation (that he published as a book, Economics of good and evil) didnt include any numbers/calculations/econometrics.

Even though the book is fairly complex and interesting view on economics as a science in general and quickly became a bestseller.


Again, not saying thats wrong

ok krax

the question sucks and 3/4 of econ phds and econ grads agree with me

I meant stupid as in "obv smart enough to get their math undergrad degree with good GPA and get into grad school" I wasnt characterizing their econ understanding
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reading opportunity cost as monetary or accounting benefit of the second best option is ******ed and shows deep misunderstanding of the issue. This understanding also renders all of econ useless and ridiculously wrong, since this approach doesnt let microecon explain majority of human decisions.

I thought this was pretty easy but certainly understand why most people have trouble with this stuff.

Edit: My wife got it, too.

it's okay krax, no one listens to economists anyway

Actually, the question is fine.

you understand why econ PhDs have trouble with this too?

Plz do tell, thats the interesting question here and one of the reasons why this thread was created. I wanna know why they are not capable of answering correctly (is it really just because so many econ PhDs are essentially mathematicians, not economists?) and Im intriqued by implications for current economics education system (like I said, undergrad/grad conflict).

e i pi: think about what you said. Then think about what I said. Then stop posting pseudofunny pics and start discussing relevant issues:P

if u still dont get it, I suggest defining utility, then finding in some intro book proper definition of opportunity cost and thinking again. If you still dont get why this question is not confusing, I suggest reading more Krugman and starting a war in order to help economy.



coffee: is this topic irrelevant/useless? I cant help but notice lack of discussion I was hoping for/expecting.

I'm guessing not many of those econ PhDs were Austrian. Obviously a correlation right there.

I'd also guess mathematicians would do better than economists because "econ PhDs are essentially mathematicians" is more like "econ PhDs are essentially wannabe mathematicians that were to dumb for math"

No, it's interesting--definitely not useless. I heard about it a while ago, when it was possibly first making its rounds--several professors told me about it/we discussed it briefly.

I'm not sure what to say though, other than 'that's sad'. I guess I can say I agree with the article, that the concept is not used much at the Ph.D./research level. I can say I haven't, and usually papers assume other things away or in the case of one model I can think of, just say 'the outside option (or best outside option) gives an enjoyment/utility/net worth X', so one uses the idea but doesn't calculate it.

That said, the reason to me it is sad is that in any intro text (I think...) the concept is front and center, usually pretty early--sometimes (usually?) the chapter immediately after the intro (as the paper alludes to). Maybe it is as the paper says, that the instructors are mislead by the sloppy definition (value of the next best thing, without calculation). I'd be interested to know if the books have cleaned up their wording/examples to give that more rich example that explains better how to calculate it.

Answer seemed pretty easy if you thought about it for a second. But maybe I'm saying that because I got it right.

Very little things could have changed the answer though. It's hard to tell the way we should value the Eric Clapton tickets. The only clue of value we get is the "willing to pay 50 bucks to see Dylan". If we want to see Eric Clapton equally as Dylan, the opportunity cost would be zero, as there is no preference of who we see, but it is implied we'd rather see Dylan for 50 bucks, but since they are available cheaper that's what we "lost".

Or maybe I'm just wrong here.

The question is bad. Based on this information* we can't know... we don't know how he values Eric Clapton.

Still it's pretty obv. that they want 10$ as answer.

Hahah, I guess I was wrong in what I was saying about the value of the Clapton tickets.

"Instead, all were applying a flawed concept of opportunity cost to the question (e.g., a couple believed one needed to know the willingness to pay for the Clapton ticket to
answer the question)."

OP: You should post the follow up question in the paper.

Because it's a difficult question and experts don't always get every single question right pertaining to their field. Saying it's a simple question obviously isn't true if there is such difficulty with PHD's getting the correct answer.

Ups. I failed.

We don't need to know anything about that to figure out the opportunity cost.

Oops, guess Wil's post answered that already.

TBH, it is a simple question--that's what is sad about the incorrect answers. The problem was the apparent lack of knowledge by the people answering the question. In other words, it's a question I would expect (in one sense--I wouldn't be surprised if they didn't) students a few weeks into an intro econ course to be able to answer.

I would pose that without the answers at the bottom the question would be even harder. You can reverse engineer the question and try to make each fit. Doing it that way makes you consider 10 dollars where you may have never considered the difference between the regular cost and the current cost of the Dylan tickets. Once you realize that is even a possibility, it makes sense. You're "saving" yourself 10 bucks that day if you decided to go see Dylan, but you are going to Clapton so you AREN'T saving it. Hence, you "lose the opportunity to save 10 bucks".



The real question is who the hell would pay 50 bucks to see Bob Dylan?

And that's why I love multiple choice

It's not a difficult question. Econ PhDs doing bad on this is the result of focusing education in economics on idiotic math puzzles that look scientific.

I agree with this. Multiple choice tests are generally pretty dumb and I'd be fairly sceptical of any university that uses them widely (in before but oh-elite-university does).