Monday, February 20, 2006

Practice anyone?

For my students out there reading this, please pay attention to the lecture or I'll switch the WiFi off.

No, seriously, take a look at this post by John Quiggin (via others). Make sure you can answer questions like this for the mid-term. Also, to the extent that you can, you can also see evidence that you might be outperforming many economics PhDs. (No wonder it is so hard for you to get substitutions for economics in the MBA course!)


James said...

I think I have missed something - to get this answer does it assume that you get no benefit out of going to the Eric Clapton concert? But surely then you wouldnt go? Can you run through this in class?

Joshua Gans said...

The question asked you what the opportunity cost of going to see Eric Clapton is. (Note that this is different from a question of what should you do; that would depend on your relative value from seeing Dylan versus Clapton. We are only given information on the value of seeing Dylan (that is, $50) and not for Clapton.

So opportunity cost is the value of what you are giving up by going to Clapton. If you go to Clapton, you would choose to go to Dylan (this would net you value of $10; that is, $50 less then $40 you have to pay for those tickets). So opportunity cost of going to Clapton is $10.

Thus, given that you are getting the tickets for Clapton for free, it had better be that you willingness to pay for Clapton tickets is $10 or more if you are going to choose that option. If you don't like Clapton at all, you would still pay to go and see Dylan.