Question

How can opportunity cost affect a college student? Give examples.

Answer 1

The choice to go to college (or to where to go to college) will be one of the most important in your life. Whether you decide to go to a local government school or a prestigious private liberal arts school, your career outlook and debt will have long-term impacts. Before you make this important decision, it's important to consider all possible decisions and benefits and costs. However, if we didn't look at the opportunity costs associated with going to college (or university) we would not be economists.

We must remember that the highest valued alternative is defined as the cost of an opportunity. So to move forward we need to consider what alternatives are available, rather than attending college. Maybe the most obvious thing would be going to work instead of going to college, but how much could one actually earn with just a high school degree? Besides the salary given up by going to college full time we would also have to consider the college's price itself. By looking at only these two factors we can get a good estimate of the cost of going to college for the opportunity.

If you choose not to attend college, picking up a job would be one likely scenario. Say you get $35k a year out of high school job. You've earned around $140k after four years (without any wage increases or bonuses). What if you go to school, then? Let's assume that your tuition and expenses are $30k per year and you decide to put your head down and graduate within four years. Let's say you're choosing to stay focused entirely on school and not work while in college.

You are out $120k right after four years? Well ... yes, but here's where the cost of opportunity comes in. Because you have chosen to go to college rather than to work, your opportunity cost is actually the sum of your college expenses plus the money you could have earned if you did not choose to work. The cost of your chance to attend college is $260k.