The concept of opportunity cost is not foreign to most people who have taken an introductory economics class at some point, nor is it terribly complex to grasp if you don’t have that background. Basically, it is the value attributed to the next best thing that has been foregone in favor of something else. Many economic models take this principle into account when they are interpreted to describe consumer behavior. However, when it comes to application in the real world, Frederick et al. (2009) argue that this assumption that consumers evaluate their opportunity cost at every turn does not hold Continue reading Guilty on One Count: Negligence (of Opportunity Cost)
As technology has advanced, we have seen the effect it can have on labor demand, especially for lower-skilled workers. Erik Hurst, an economist at the University of Chicago, decided to look at how technological change influenced the other side of the market, or labor supply. Hurst, along with his co-authors Aguiar, Bils, and Charles released a working paper called .Leisure Luxuries and the Labor Supply of Young Men examining the impact of video games and other recreational computer activities on the willingness of young men to act as labor suppliers. A Theory of Individual Labor Supply One way which economists have looked at Continue reading Fall of Duty: Video Games vs. The Labor Market
In economics, a common topic of discussion is opportunity cost, or the value of your next best option given up when you choose something. It is often used to highlight how people make decisions when faced with limited resources, especially scarcity of time and money. One common example is a college education. When most people look at the cost of college, they look at the sticker price on the college’s website, which includes room and board, tuition, and a few other odds and ends. Let’s say that ends up being $30,000, with $20,000 for tuition, $9,000 for room and board, and $1,000 Continue reading Why Should Class Attendance be Optional?
Pennies are useless. Actually, they are worse than useless. In a way, they are actually harmful. Why? Because they are supposed to function as money. Money is used to “facilitate the exchange of goods and services” and pennies simply aren’t valuable enough to do that. They used to, but thanks to inflation, the buying power of the penny is so small that its practically useless. When is the last time you saw a penny on the ground and actually bothered to pick it up? Never, I know. Simply put, the opportunity cost to pick up, sort and deal with pennies Continue reading Pennies Suck.
With fall break in front of us and midterms almost behind us, perhaps one of the last things that any student is thinking of right now is the work due after break. You know, that paper that was assigned weeks ago to be turned in the day classes resume? Procrastination is real and we can use economic theory to prove that the phenomenon is a result of rational thinking contrary to the many perceptions of laziness and lack of time management which surround the act of doing work later, rather than sooner. The theory comes from microeconomics and it goes like this. Continue reading Procrastination
Tail events, in probability speak, are extreme events with the potential for a very large impact but which have a very low likelihood of occurring. Many people (I think accurately) view the most recent financial crisis as the occurrence of a tail event: it was highly unlikely that the system would experience such a drastic collapse, but it happened. We might consider the change of nuclear war or alien invasion as a tail risk. In N. Nassim Taleb’s The Black Swan, Taleb discusses the dangers of such risks with an analogy: even if you have encountered thousands of swans in your lifetime, and have never Continue reading On Tails