Question

a. What is the opportunity cost of education? Explain fully use real dollar amounts in your example. As the price of education increases what happens to the opportunity cost of an education? b. If there are 250 million people in the US, and 67% participate with 8% unemployed, how many people are employed, unemployed and what is the total labor force? Demonstrate each step.

Answer 1

A) Opportunity cost is the loss of potential gain from choosing one option from a number of alternate options. Opportunity cost of education is the value of forgone job you could have earned if you didn't go to college or other educational institutions. The opportunity cost here also includes the cost of education, that is, tution fees, cost of books etc.

So, suppose you're attending a 4 years college course for higher studies and for that you're giving up your job that you were offered out of high school and this job pays you $40k a year. That means, in 4 years, you could have earned $160k. Also, suppose your annual tution fees is $15k. It means in 4 years, your total expense is $(15*4)k = $60k. So, your opportunity cost of attending college is $(160+60)k = $220k.

If price of education increases (that is, your annual tution fees and expenses increase), then your opportunity cost of education will also increase.