One of the big ideas that I was exposed to in college was opportunity costs. You might have run across this concept while planning your retirement or creating a budget.
Since the origin of opportunity costs comes from the field of Economics, how do they introduce the idea? Many intro textbooks open the topic with the provocative question: Guns or butter? You might be tempted to answer: Both! But when you dig deeper, you find that there is a common, finite resource that they both depend on. Sodium nitrate can be used to make both gun powder and fertilizer. That means you can either make lots of gun powder or lots of fertilizer. Unfortunately, you can't have both.
Another place where you might have run into the concept of opportunity costs is in the award-winning film Fences (2016). The main character (Troy) and his son (Cory) are building a fence [1]. Troy played baseball back in the day, and Cory uses this interest to convince his father to purchase a TV. Here is their dialog:
Cory: Hey, Pop, why don’t you buy a TV?
[...]
Troy: Yeah. And how much this TV cost?
Cory: I don’t know. They got them on sale for around two hundred dollars.
Troy: Two hundred dollars, huh?
Cory: That ain’t that much, Pop.
Troy: Nah, it’s just two hundred dollars.
Troy: See that roof you got over your head at night? Let me tell you something about that roof. It’s been over ten years since that roof was last tarred. See now, the snow come this winter and sit up there on that roof like it is, and it’s gonna seep inside. It’s just gonna be a little bit, ain’t gonna hardly notice it. Then the next thing you know, it’s gonna be leaking all over the house. Then the wood rot from all that water and you gonna need a whole new roof. Now, how much you think it cost to get that roof tarred?
Cory: I don’t know.
Troy: Two hundred and sixty-four dollars – cash money. While you thinking about a TV, I got to be thinking about the roof, and whatever else go wrong around here. Now if you had two hundred dollars, what would you do: fix the roof or buy a TV?
Troy is trying to teach his son about the importance of hard-work and the value of a dollar. He does a fantastic job because he sets up the perfect example of an opportunity cost: Fix the roof or buy a TV? Although Troy works for the Pittsburgh Department of Sanitation, he sure sounds like an Economist!
Share and Enjoy!
Dr. Bob
